-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WjXWHQjog6JrlA/Fh0inv5DQOM+EYDhV8SFvL5kZyPq9xMWCRsmijZyQOgSNZVeA KtBStzdkHAjNdVZ9e3YuUg== 0000950144-96-001471.txt : 19960402 0000950144-96-001471.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950144-96-001471 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WACKENHUT CORP CENTRAL INDEX KEY: 0000104030 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DETECTIVE, GUARD & ARMORED CAR SERVICES [7381] IRS NUMBER: 590857245 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-05450 FILM NUMBER: 96542778 BUSINESS ADDRESS: STREET 1: 1500 SAN REMO AVE CITY: CORAL GABLES STATE: FL ZIP: 33146 BUSINESS PHONE: 3056665656 MAIL ADDRESS: STREET 1: 1500 SAN REMO AVENUE CITY: CORAL GABLES STATE: FL ZIP: 33146 10-K405 1 WACKENHUT CORPORATION FORM 10-K405 12-31-95 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- ------- COMMISSION FILE NUMBER 1-5450 ------ THE WACKENHUT CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 59-0857245 - -------------------------------------------------------------------------------- (State of incorporation or organization) (I.R.S. Employer Identification No.) 4200 Wackenhut Dr. #100, Palm Beach Gardens, FL 33410-4243 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (407) 622-5656 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, Series A, $.10 par value New York Stock Exchange - -------------------------------------- ----------------------- Common Stock, Series B, $.10 par value New York Stock Exchange - -------------------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] At February 16, 1996, the aggregate market value of the 3,858,885 shares of Common Stock, Series A, the registrant's sole class of voting stock, held by non-affiliates of the registrant was $38,261,641. At March 28, 1996, 3,858,885 shares of Series A and 8,309,762 shares of Series B of the registrant's Common Stock were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts of the registrant's Proxy Statement for its 1996 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report. EXHIBIT INDEX IS ON PAGE 46 2 PART I ITEM 1. BUSINESS GENERAL The Wackenhut Corporation (the "Company") is a leading international provider of security-related and other support services and a leading developer and manager of privatized correctional and detention facilities. The Company provides security services, food services and other related services to commercial and governmental customers through its services business (the "Services Business"). Through its correctional business (the "Correctional Business"), the Company also provides correctional and detention facility design, development and management services to governmental agencies. The Company has approximately 45,000 full and part-time employees serving over 14,000 commercial and governmental customers through an extensive network of offices and operations in 48 states and 50 countries. The Company was incorporated in 1958 to continue the businesses that were originally established in 1954 by its Chairman and Chief Executive Officer, George R. Wackenhut, to provide security-related services to commercial and governmental customers. Since its founding, the Company has grown by: (i) enhancing its position in its core security-related services business through the development of specialized and upgraded services; (ii) targeting specific segments of the security services industry; and (iii)expanding into a range of other support services in response to a growing trend toward privatization of governmental services and outsourcing by commercial customers. The Company is the third largest security services organization in the United States and is the leading United States-based provider of security services abroad. In addition to its core security-related services, which include guard and investigative services, the Company is a leader in the development of specialized niche services. For example, in response to a growing demand in the marketplace for security professionals with greater skill and responsibility levels, the Company has developed its Custom Protection Officer ("CPO") program to provide highly specialized and trained security professionals to a broad range of customers such as national retailers, banks and other financial institutions and gated communities. CPOs are also used as supplemental law enforcement forces by public transportation authorities and other governmental entities. Moreover, in seeking to respond to the specialized needs of its larger clients, the Company developed its national accounts ("National Accounts") program to provide customized security services on a national or regional level to large customers with multiple locations. The National Accounts program provides customers with a high level of service by providing a dedicated contact person with the Company who is responsible for coordinating their accounts on a nationwide basis. The Company believes that the National Accounts program may also enable it to expand the scope of services offered worldwide to its National Account customers. Management believes that the high quality and consistent service of its CPO and National Accounts programs provide the Company with an opportunity to enhance long-term relationships with its clients. As part of its strategy to respond to the growing trend toward privatization of governmental services, in 1984 the Company entered into the development and management of privatized correctional and detention facilities, a business which is now operated exclusively through its 55% owned Wackenhut Corrections Corporation subsidiary ("WCC"). WCC presently has contracts to manage 25 correctional and detention facilities, with a design capacity of 16,653 beds. From December 29, 1991 to December 31, 1995, WCC's revenues increased from $37.9 million to $99.4 million and operating income increased from $1.7 million to $7.2 million, representing compound annual growth rates of 27.3% and 43.5%, respectively. In addition, from December 29, 1991 to December 31, 1995, the Company increased its design capacity of contracts at a compound annual growth rate of 37.4%. As of March 27, 1996, WCC's total equity market capitalization was approximately $394 million. In addition to its expansion into the Correctional Business through WCC, the Company has leveraged its management skills to expand into other support services. In 1992, the Company entered into the foodservice business for correctional institutions and, in January 1996, expanded its presence in this market through the acquisition of contracts and certain assets of the Correctional Food Services Division of Service America Corporation. In 1995, the Company's Food Services Division had revenues of $34.7 million and the Correctional Food Service Division of Service America Corporation, which the Company acquired, had revenues of $41.1 million. Presently, only 10% of the correctional foodservice market has been privatized. Consequently, the Company believes that as privatization of correctional food services continues to gain 3 acceptance at state and local levels, the Food Services Division will have opportunities for expansion. In addition to the services which the Company has specifically targeted for expansion, the Company continues to explore and selectively invest in other service businesses, including temporary services, commercial and governmental support services, supplemental police services, crash-fire-rescue services, fire protection services, and airport services. BUSINESS STRATEGY The Company's business strategy is focused on two primary objectives: (i) enhancing its position as a leading international provider of security and security-related services by distinguishing the type and quality of security services it provides; and (ii) using its security service expertise and contacts to offer other support services to its clients. Key elements of the Company's business strategy are described below: - ENHANCE LEADERSHIP POSITION OF CORE SECURITY-RELATED SERVICE BUSINESS. The Company strives to enhance its market position by attempting to provide the most reliable and consistent service in the industry. The Company believes its security professionals provide quality service because of: (i) strictly enforced screening and hiring procedures; (ii) intensive training; and (iii) well-organized supervisory and feedback procedures. The Company's customer turnover ratio, the industry benchmark for client satisfaction, has been significantly lower than the industry average. Domestically, the Company experienced 9.1% client turnover during 1995, a period in which the industry, the Company believes, experienced an approximate 20% client turnover rate. Furthermore, the Company's employee turnover ratio for security guards has averaged approximately half of what the Company believes to be the industry average. - DEVELOP SPECIALIZED SECURITY SERVICES. The Company has identified and targeted National Accounts and CPOs as its primary growth areas in the security services business and seeks to expand its market position. Management believes that the high quality and consistent service of its National Accounts and CPO programs provide the Company with an opportunity to establish and enhance long-term relationships with its clients. - DEVELOP COMPLEMENTARY SUPPORT SERVICES. The Company will seek to expand the scope of complementary support services it offers. The Company's successful identification and development of the correctional business and the foodservice business has provided it with the experience it believes will allow it to develop other specialized programs and support services such as temporary services, building maintenance, supplemental police services, crash-fire-rescue services, fire protection services, and airport services. - GEOGRAPHIC EXPANSION. The Company seeks to increase revenues and enhance earnings stability by continuing to expand its international presence. Historical revenue growth has been centered in Central and South America and, more recently, Western Europe. The Company has also been expanding into Central and Eastern Europe, the former Soviet Union, the People's Republic of China and other countries in the Far East in an attempt to capitalize on recent economic developments and political reforms in these areas. The Company believes this geographic diversity helps to protect its revenues and earnings from adverse regional economic and business cycles. In addition, the Company believes that its far reaching geographic presence, which includes 50 countries worldwide, provides it with an advantage when pursuing contracts with multi-national corporations. - CORRECTIONAL BUSINESS. WCC's objective is to enhance its position as one of the leading providers of privatized correctional and detention services. Key elements of WCC's business strategy include: (i) effective management of projects; (ii) selective development of new business opportunities; (iii) selective pursuit of acquisitions; (iv) expansion of its scope of services; (v) expansion into international markets by establishing alliances with strategic local partners; and (vi) limiting capital risk. - PURSUE SELECTED ACQUISITIONS. In addition to internal growth in the security-related services business, the Company's growth strategy includes the selected acquisition of other support service businesses. 4 For example, through its January 1996 acquisition of the Correctional Food Services Division of Service America Corporation, the Company has established a leading position in the growing correctional foodservice industry. MARKETS SERVICES BUSINESS. The private security-related services industry includes guard and investigative services, alarm monitoring services, security consulting services, armored car transport and other security services. According to an industry study by The Freedonia Group, Inc., dated June 1995 (the "Freedonia Report"), the total private security-related services industry had revenues of approximately $16.6 billion in 1994, which are projected to increase to $26.1 billion by the year 2000, a compound annual growth rate of 7.9%. The largest and most visible component of the industry is the guard and investigative services component which also accounts for the largest portion of the Company's revenues. According to the Freedonia Report, the guard and investigative services market, including security consulting services, had revenues of approximately $11.6 billion in 1994, which are projected to increase to $17.9 billion by the year 2000, a compound annual growth rate of 7.6%. Guard and investigative services are often characterized within the industry as either "proprietary" or "contract," depending on the service provider. Under proprietary arrangements, end users of the services employ, schedule and manage their own security officers and detectives. In contrast, contract services are provided to end users pursuant to contracts with independent security-related service firms such as the Company. The Company believes that the advantages to clients of using contract security service providers rather than providing services internally on a proprietary basis are three-fold: (i) the client may realize cost and administrative savings; (ii) the client is freed to concentrate on its core competencies; and (iii) the client may be able to reduce labor management concerns with security-related employees, who are employed by the Company. According to the Freedonia Report, the total market for contract guard and investigative services was $10.9 billion in 1994, representing approximately 66% of the total contract security-related services market. In addition to its presence in guard and investigative services, the Company has identified opportunities in related services markets, such as correctional food services. Only 10% of prisons and jails in the United States have privatized their food services, of which the Company's market share is approximately one-third. The Company believes that trends in privatization will result in growth opportunities in this market component. CORRECTIONAL BUSINESS. The trend in the United States and other countries toward privatization of government services and functions has increased as governments have faced continuing pressure to control costs and improve the quality of services. Governmental agencies responsible for correctional and detention facilities have privatized facilities in an attempt to address these pressures. During the period from 1984 to 1994, the worldwide number of beds under management at privatized correctional and detention facilities increased from 885 to 49,154, with the majority of this growth occurring since 1989. During 1994, the worldwide number of beds under management or construction at privatized correctional and detention facilities increased 51.0% to 49,154 from 32,555 in 1993. WCC markets its services in the United States to federal, state and local governmental agencies. According to reports on privatization from the Private Corrections Project Center for Studies in Criminology and Law, University of Florida (the "Privatization Reports"), 18 states and Puerto Rico had awarded management contracts to private companies at December 31, 1994. At December 31, 1994, there were a total of 80 facilities with a design capacity of 45,386 beds privatized in the United States, of which the Company was awarded 19 facilities with a design capacity of 11,838 beds. Federal agencies have privatized Immigration and Naturalization Service detention facilities and United States Marshal detention facilities. State agencies have privatized state prisons, community corrections facilities, chemical dependency treatment centers, intermediate sanction facilities, juvenile offender facilities, pre-release centers, work program facilities and state jail facilities. Local agencies have privatized city jail facilities and transfer facilities. In the United Kingdom, the Home Office, the chief British governmental body responsible for law enforcement, awarded its first contract for a privately-managed prison in 1991. At December 1, 1995, there 5 were a total of six facilities with a design capacity of 3,505 beds privatized in the United Kingdom, including one managed by a WCC joint venture, with a design capacity of 850 beds. The Home Office has stated that new correctional and detention facilities in England and Wales will be privatized. Therefore, WCC believes that significant growth opportunities exist in the United Kingdom. The Home Office is also privatizing court escort services. In December 1995, the Company's joint venture, PPS, was awarded contracts to perform court escort services in two regions of the United Kingdom. In Australia, Queensland privatized its first facility in 1989. At December 8, 1995, there were a total of five privatized facilities with a design capacity of 2,233 beds privatized in Australia, of which WCC currently manages three facilities with a design capacity of 1,778 beds (which includes the design capacity of the Sale, Australia facility which is presently under construction). COMPANY ORGANIZATION The Company's business can be divided into the Services Business and Correctional Business. The Services Business, which encompasses all business of the Domestic Operations Group and the International Group, and all business of the Government Services Group except for the operations of WCC, provides security-related and other support services for commercial and governmental clients. The Correctional Business, which consists exclusively of the business conducted through WCC, provides correctional and detention facility design, development and management services to government agencies. Provided below is financial information for each business segment for Fiscal 1993, Fiscal 1994 and Fiscal 1995. The following table sets forth the contribution to consolidated revenues and operating income by each of the Company's business segments. See Note 14 of Notes to Consolidated Financial Statements (which also includes a summary of domestic and international operations) included elsewhere in this Annual Report on Form 10-K.
FISCAL 1993 FISCAL 1994 FISCAL 1995 ---------------- ----------------- ---------------- BUSINESS SEGMENT AMOUNT % AMOUNT % AMOUNT % - -------------------------------------------------------- -------- --- -------- ---- -------- --- (in thousands) Revenues: Services.............................................. $600,472 91% $642,727 88% $697,301 88% Correctional.......................................... 58,784 9 84,026 12 99,431 12 -------- --- -------- ---- -------- --- Total Revenues...................................... $659,256 100% $726,753 100% $796,732 100% Operating Income: Services.............................................. $ 3,050 68% $ 10,846 71% $ 8,545 54% Correctional.......................................... 1,446 32 4,446 29 7,229 46 -------- --- -------- ---- -------- --- Operating Income before write-down of headquarters building............................... 4,496 100% 15,292 100% 15,774 100% Write-down of headquarters building................... -- (8,700) -- -------- -------- -------- Total Operating Income.............................. $ 4,496 $ 6,592 $ 15,774
SERVICES BUSINESS The Services Business is conducted through three separate operating groups: the Domestic Operations Group, the Government Services Group (excluding WCC) and the International Group. The following table sets forth the contribution of each operating group to the total revenues and total operating income of the Services Business during Fiscal 1993, Fiscal 1994 and Fiscal 1995.
REVENUES -------------------------------------------------------------- FISCAL 1993 FISCAL 1994 FISCAL 1995 ---------------- ---------------- ---------------- OPERATING GROUP AMOUNT % AMOUNT % AMOUNT % - --------------------------------------------------------- -------- --- -------- --- -------- --- (in thousands) Domestic Operations...................................... $336,048 56% $380,941 59% $423,743 61% Government Services (excluding WCC)...................... 184,915 31 177,613 28 166,035 24 International............................................ 82,759 14 89,900 14 113,205 16 Other.................................................... 1,019 -- 1,222 -- 1,141 -- Inter-Group Revenues..................................... (4,269) (1) (6,949) (1) (6,823) (1) -------- --- -------- --- -------- --- Total Services Business Revenues......................... $600,472 100% $642,727 100% $697,301 100%
6
OPERATING INCOME -------------------------------------------------------------- FISCAL 1993 FISCAL 1994 FISCAL 1995 ---------------- ---------------- ---------------- OPERATING GROUP AMOUNT % AMOUNT % AMOUNT % - --------------------------------------------------------- -------- --- -------- --- -------- --- (in thousands) Domestic Operations...................................... $ 10,434 65% $ 12,977 61% 13,501 70% Government Services (excluding WCC)...................... 3,499 22 5,162 25 2,871 15 International............................................ 2,164 13 2,992 14 2,783 15 -------- --- -------- --- -------- --- Operating Income Before Corporate Expenses and Underwriting Losses................................ 16,097 100% 21,131 100% 19,155 100% Corporate Expenses and Underwriting Losses............... (13,047) (10,285) (10,610) -------- -------- -------- Total Services Business Operating Income................. $ 3,050 $ 10,846 $ 8,545
DOMESTIC OPERATIONS GROUP. The Domestic Operations Group has historically provided over half of the Company's consolidated revenues. This group provides security-related and other support services throughout the United States. The Domestic Operations Group is subdivided into the following divisions: the Security Services Division, the Nuclear Division and the Food Services Division. In conducting its Services Business, the Company has adopted a quality management approach. General management responsibilities for each operating group are vested in a small group of managers located at Company headquarters. Day-to-day management responsibility for each group is vested in field managers who have primary responsibility for client contact and satisfaction. Field managers are selected through an intensive screening process and receive what the Company believes is state-of-the-art training. Supervisory personnel from Company headquarters periodically visit sites and carefully monitor operating results. Security Services Division. Through its Security Services Division, the Company furnishes security officers (armed and unarmed) to protect its clients' property against fire, theft, intrusion, vandalism and other physical harm. Specialized security services offered by the Company include executive protection, crash-fire-rescue services, fire protection services and airport services. The Company also provides security consulting services including security assessment and program development, specialized training programs for security guards, fire-crash-rescue personnel, and investigative services for attorneys, financial institutions and retail and industrial businesses. The Company will attempt to further enhance its market position in the security-related services industry through internal growth by continuing to: (i) pursue domestic and international National Accounts; (ii) differentiate its security-related services within the industry by emphasizing its CPO program; and (iii) market the Company's services to specialized market niches such as gated residential communities and hospitals. The Company intends to emphasize attracting and retaining National Accounts that require security-related services on a national or regional level at multiple locations. Such clients include retail chains, banks, manufacturers and restaurant chains. Management believes that such clients value the flexibility and service provided by a dedicated single point of contact with the Company through the National Accounts program. For its CPO program, the Company recruits law enforcement academy graduates, former military police, members of elite military units and college graduates with criminology-related degrees. These recruits are prepared for critical security assignments after completing a Company training program that surpasses any state or local requirements for security officer licensing. Only about 6% of initial applicants for the Company's CPO program are eventually hired by the Company. CPOs perform such functions as prisoner transportation in Maryland and Colorado, neighborhood and downtown security in Florida, transit security in Wisconsin and California, rest-stop security in Florida and other supplemental law enforcement-related services. Management believes that services provided by CPOs distinguish the Company's services from those of the competition by providing highly specialized and trained security personnel capable of undertaking and accepting responsibilities that are beyond the capabilities of traditional security guards. The contracts of the Security Services Division with private industry usually are for a one year term. Most of these contracts are subject to termination by either party on 30 days prior notice. Billing rates are based on a specified rate per hour and generally are subject to renegotiation or escalation if related costs increase because of changes in minimum wage laws or certain other events beyond the control of the Company. 7 The Company designs and engineers integrated security programs using both security officers and electronic equipment. These services include planning master security programs for particular facilities, custom designing security systems, procuring requisite electronic equipment, managing contracts and construction, training security personnel, and reviewing and evaluating security programs. Contracts for these integrated security-related services generally provide for a fixed fee and are awarded by competitive bidding. The Company complements security services provided to its clients with investigative services, such as employee background screening and insurance fraud investigations. The Company maintains a national research center with the latest information-gathering technology for public records and a "fraud-waste- criminal" hotline for employees of clients to report workplace abuses. Clients ordinarily are charged an hourly rate for investigative services and a flat rate for background record searches. Nuclear Division. The Company provides specialized security-related services for nuclear power generating facilities owned by public and private utility companies. The Company provides highly trained and qualified security personnel, emergency planning, electronic detection equipment and integrated security systems to these utility companies. The terms of contracts entered into by the Nuclear Division generally are multi-year and include a variety of fee arrangements. The Company's experience with requirements and standards of the Nuclear Regulatory Commission ("NRC") enable it to assist customers in ensuring NRC compliance. Food Services Division. The Company's correctional foodservice business, the second largest in the industry, provides over 31 million meals annually to over 115 jail and prison facilities in 27 states throughout the United States. Food for regular, therapeutic and religious diets is prepared using conventional or cook-chill methods. The Company provides a quality assurance program that encompasses all aspects of the foodservice business. Specifically, the Company provides product testing and menu development through its staff of nutritional experts, which includes professional dietitians. Also, to ensure high quality of service and product, facility audits are conducted on an on-going basis. The Company bids for foodservice contracts and provides food services on a cost per meal basis. Complete foodservice management, commissary, laundry and janitorial programs are available to correctional clients. On January 5, 1996, the Company acquired the contracts and certain assets of the Correctional Food Services Division of Service America Corporation, which had revenues of approximately $41.1 million in 1995. The Company paid a cash purchase price of approximately $12.4 million. Only 10% of the correctional foodservice business was privatized as of December 31, 1995. Consequently, the Company sees substantial opportunity to expand its operations in the Food Services Division, especially in light of the recent trend toward privatization of certain governmental services. Additionally, the correctional foodservice business has high barriers to entry, including the need for substantial expertise to comply with strict governmental dietary requirements and the capital resources necessary to finance start-up costs and maintain inventory levels. The Company believes that its in-house staff of highly-trained professional dietitians and managers provides it with a competitive advantage. The Company intends to concentrate on expanding its Food Services Division through internally-generated growth and selected acquisitions. GOVERNMENT SERVICES GROUP. The Government Services Group generates approximately 21% of the Company's consolidated revenues. The Government Services Group business is conducted primarily through WCC and Wackenhut Services Inc. ("WSI"). For a discussion of WCC, see "Business -- Correctional Business." Through WSI, the Government Services Group provides security services primarily to United States federal government entities and has established a commercial client base in Australia. Services provided by WSI range from basic security and administrative support to specialized emergency response teams. These response teams are staffed with highly trained personnel, many with prior governmental intelligence experience. These response teams are equipped with sophisticated weaponry and engage in such specialized activities as aerial assault and rapelling operations. In the United States, WSI provides security-related services at 11 sensitive government installations. For example, the Company has held the operations and maintenance contract for the Savannah River Site in South Carolina since 1983, the single largest government contract for security-related services. Since 1990, the 8 Company has managed the Rocky Flats Environmental Technology Site near Denver and since 1964, has managed the Nevada Test Site near Las Vegas. Since 1986, WSI also has provided security as a sub-contractor at the U.S. Strategic Petroleum Reserves in Texas and Louisiana. Since 1984, WSI has overseen training and resource development for the United States Department of Energy at the Central Training Academy in Albuquerque, New Mexico. The Company's service contracts with governmental agencies are typically cost-reimbursable contracts providing the Company the ability to earn award fees based upon the achievement of performance goals. The Company's service contracts with governmental agencies are subject to annual governmental appropriations. Through the Government Services Group the Company also operates its accelerated access authorization program. This program provides background investigation and research services in support of individual clearances required for employment at United States Department of Energy sites. Currently, this program provides services at two facilities. INTERNATIONAL GROUP. International Group accounts for approximately 14% of the Company's consolidated revenues. The International Group's business is conducted primarily through Wackenhut International, Inc. ("WII"). Since its organization in 1967, WII has grown to include a network of subsidiaries, partnerships and affiliates in over 50 countries. Management believes the Company's international presence, through the operations of WII, is larger than any of its domestic competitors. The Company believes that its risk exposure in international operations conducted through WII is reduced substantially by the fact that the vast majority of its international operations are structured through joint ventures with parties who operate in the given market. These parties often provide valuable insight into local markets, in addition to sharing financial responsibility for the venture. WII also provides a greater variety of services than the Company offers domestically. These services include, among other things, central station monitoring, armored cars and janitorial services. The Company believes that this experience will be valuable in assisting the Company's domestic expansion into new support service areas. The Company's goal is to increase its international presence by further developing existing markets and by expanding into new markets. Most recently, WII has expanded into Central and Eastern Europe, the former Soviet Union, the People's Republic of China and other countries in the Far East in an attempt to capitalize on recent economic developments and political reforms in these areas. In addition to providing traditional security services to commercial customers at overseas locations, WII provides security for the U.S. Department of State at embassies and missions in 23 locations. WII also provides protective services at NASA space shuttle support sites in Africa. Major competitors of WII include large United States-based companies with operations overseas, sizable foreign concerns such as Group 4 and Securitas, and local and regional companies. CORRECTIONAL BUSINESS The Company's Correctional Business is conducted through the operations of WCC. WCC is a leading developer and manager of privatized correctional and detention facilities in the United States, the United Kingdom and Australia. WCC was founded in 1984 as a division of the Company to capitalize on emerging opportunities in the private correctional services market. WCC presently has contracts to manage 25 correctional and detention facilities with an aggregate design capacity of 16,653 beds, 17 of which are currently in operations, seven of which are under development by WCC and one of which is being developed by a third party. WCC offers governmental agencies a comprehensive range of prison management services from individual consulting projects to the integrated design, construction and management of correctional and detention facilities. In addition to providing the fundamental services relating to the security of facilities and the detention and care of inmates, WCC has built a reputation as an effective provider of a wide array of in-facility rehabilitative and educational programs, such as chemical dependency counseling and treatment, basic education, and job and life skills training. The Company believes that WCC's experience in delivering a full 9 range of quality privatization services on a cost-effective basis to governmental agencies provides such agencies strong incentives to choose WCC when awarding new contracts or renewing existing contracts. In the United States, there is a growing trend toward privatization of correctional and detention services as governments have faced continuing pressure to control costs and improve the quality of services. According to the Privatization Reports, the design capacity of privately-managed correctional and detention facilities in the United States has increased significantly over the last ten years. The majority of this growth has occurred since 1989, as the number of correctional and detention facilities under contract for private management increased from 26 facilities with a design capacity of 10,973 beds in 1989 to 88 facilities with a design capacity of 49,154 beds in 1994. Even after such growth, according to the Privatization Reports, only 3.0% of inmates in United States correctional and detention facilities were housed in privately-managed facilities at December 31, 1994. The Company believes that many factors have contributed to industry growth, the most important of which are increasing inmate populations and the demonstrated ability of private entities to design, construct and manage facilities on a cost-effective basis. International recognition of the benefits of private sector management of correctional and detention facilities also continues. WCC has contracts to manage four of the 11 facilities that have been privatized in the United Kingdom and Australia. In particular, WCC believes that significant growth opportunities exist in the United Kingdom since the Home Office, the chief British governmental body responsible for law enforcement, adopted a policy in 1993 to privatize all new prisons in England and Wales, as well as some existing prisons and court escort services. In December 1995, WCC entered into two contracts to provide court escort services in the West Midlands and Southeast Areas of England, commencing in May 1996. Under court escort contracts, a private company on behalf of a governmental agency, transports prisoners between prisons, police stations and courts and is responsible for the custody of such prisoners during transportation and court appearances. WCC's objective is to enhance its position as one of the leading developers and managers of privatized correctional and detention facilities. Key elements of WCC's business strategy include: (i) effective management of projects; (ii) selective development of new business opportunities; (iii) aggressive pursuit of acquisitions; (iv) expanded scope of services; (v) expansion into international markets by establishing alliances with strategic local partners; and (vi) limiting capital risk. In September 1994, WCC completed an initial public offering ("IPO") in which it sold 2,185,000 shares of common stock at an offering price of $9 per share. Following the completion of the IPO, the Company owned approximately 73.3% of the issued and outstanding shares of common stock of WCC. In January 1996, WCC completed a subsequent public offering of 2,300,000 shares of common stock at an offering price of $24 per share, which resulted in the Company owning approximately 55% of the issued and outstanding shares of common stock of WCC. CUSTOMERS During Fiscal 1995, the Company provided services to more than 14,000 customers. The Company's largest customer was the United States Department of Energy, which accounted for approximately 17% of the Company's consolidated revenue in Fiscal 1995. The service contracts at the Savannah River site (8%) and the Rocky Flats Plant (5%) are the largest of the Company's contracts with the United States Department of Energy. Contracts with governmental agencies of the State of Texas accounted for 37% and 41% of WCC's revenues in Fiscal 1995 and Fiscal 1994, respectively. Contracts with the New South Wales Department of Corrective Services accounted for 13% of WCC's revenues in Fiscal 1995. Contracts with the Queensland Corrective Services Commission accounted for 13% of WCC's revenues in Fiscal 1995. Contracts with the Louisiana Department of Public Safety and Corrections accounted for 11% and 13% of WCC's revenues in Fiscal 1995 and Fiscal 1994, respectively. COMPETITION The Company is the third largest security and protective services organization in the United States and a leading provider of such services worldwide. The Company competes domestically and internationally with 10 Borg-Warner Security Company and Pinkerton's, Inc. The Company also competes with numerous local and regional security services companies. The top five providers of services similar to those provided by the Company account for less than 25% of the security-services market in the United States. Competition in the security-related and other support services business is intense and is based primarily on price in relation to quality of service, the scope of services performed, and the extent of employee training and supervision. However, potential competitors can enter the security-related and other support services business without substantial capital investment or expense. WCC competes primarily on the basis of the quality and range of services offered, and its experience and reputation, both domestically and internationally, in the design and management of facilities. WCC competes with a number of companies domestically and internationally, such as Corrections Corporation of America, Esmor Correctional Services, Inc., Group 4 International Corrections Service, Securicor Group, U.K. Detention Services, Ltd., and United States Corrections Corp. Some of the competitors are larger and have greater resources than WCC. WCC also competes on a localized basis in some markets with small companies that may have better knowledge of the local conditions and may be better able to gain political and public acceptance. Potential competitors can enter the correctional business without substantial capital investment or experience. In addition, in some markets WCC competes with governmental agencies that are responsible for the development and management of correctional facilities. EMPLOYEES The Company's principal business is labor intensive, and is affected substantially by the availability of qualified personnel and the cost of labor. As of March 28, 1996, the Company had over 45,000 full and part-time employees, most of whom are security officers and other personnel providing physical security services. The Company has not experienced any material difficulty in employing sufficient numbers of suitable security officers. Security officers and other personnel supplied by the Company to its clients are employees of the Company, even though stationed regularly at a client's premises. A small percentage of the employees of the Company are covered by collective bargaining agreements. Relations with employees have been generally satisfactory. At March 28, 1996, WCC had 3,038 full-time employees and 78 part-time employees. Employees at four of WCC's facilities are unionized. BUSINESS REGULATIONS AND LEGAL CONSIDERATIONS The Company is subject to numerous city, county, and state firearm and occupational licensing laws that apply to security officers and private investigators. Many states have laws requiring training and registration of security officers, regulating the use of badges and uniforms, and imposing minimum bond, surety, or insurance standards. Many foreign countries have laws that restrict the Company's ability to render certain services, including laws prohibiting security-related services or limiting foreign investment. The industry in which WCC operates is subject to national, federal, state and local regulations in the United States, United Kingdom and Australia which are administered by a variety of regulatory authorities. Generally, prospective providers of correctional services must be able to detail their readiness to, and must, comply with a variety of applicable state and local regulations, including education, health care and safety regulations. WCC's contracts frequently include extensive reporting requirements and require supervision and on-site monitoring by representatives of contracting governmental agencies. WCC's Kyle New Vision Chemical Dependency Treatment Center is licensed by the Texas Department of Criminal Justice to provide substance abuse treatment. Certain states, such as Florida and Texas, deem prison guards to be peace officers and require WCC personnel to be licensed and may make them subject to background investigation. State law also typically requires corrections officers to meet certain training standards. In addition, many state and local governments are required to enter into a competitive bidding procedure before awarding contracts for products or services. The laws of certain jurisdictions may also require the Company to award subcontracts on a competitive basis or to subcontract with businesses owned by women or members of minority groups. 11 The failure to comply with applicable laws, rules or regulations or the loss of any required license could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, the current and future operations of the Company may be subject to additional regulations as a result of, among other factors, new statutes and regulations and changes in the manner in which existing statutes and regulations are or may be interpreted or applied. Any such additional regulations could have a material adverse effect on the Company's business, financial condition and results of operations. The Company may, under certain circumstances, be responsible for the actions of its employees and agents. Under the common law of negligence in many states, the Company can be held vicariously liable for wrongful acts or omissions of its agents or employees performed in the course and within the scope of their agency or employment. In addition, some states have statutes that expressly impose on the Company legal responsibility for the conduct of its agents or employees. The nature of the security-related services provided by the Company (such as armed security officers and fire rescue) may expose it to greater risks of liability for employee acts or omissions than are posed to other businesses. The Company maintains public liability insurance to mitigate against this exposure, although the laws of many states limit or prohibit insurance coverage of liability for punitive damages arising from willful, wanton or grossly negligent conduct. 12 ITEM 2. PROPERTIES The Company relocated its executive offices to The Wackenhut Center, a newly constructed building located at 4200 Wackenhut Drive #100, Palm Beach Gardens, Florida, in March 1996. The Wackenhut Center contains approximately 90,500 square feet and is leased from P.G.A. Professional Center, Ltd., for an initial term of 15 years, with consecutive options to extend the term of the lease for three additional five year periods. This lease requires annual rental payments in the amount of $1,764,750 with no escalation during the initial 15 year term. WCC owns a 66,000 square foot building in Aurora, Colorado, which is operated by WCC as a detention center under a contract with the United States Government. The Company owns a 15,000 square foot warehouse building in Miami, Florida. In addition, the Company owns two buildings in Ecuador and one each in the Dominican Republic, Costa Rica and Puerto Rico that are used for the operations of its foreign subsidiaries in those countries. All other offices of the Company are leased. The aggregate annual rent for all non-cancelable operating leases of office space, automobiles, data processing and other equipment is approximately $6,994,000. The Company owns substantially all uniforms, firearms, and accessories used by its security officers. ITEM 3. LEGAL PROCEEDINGS On March 29, 1996, the Company settled a lawsuit alleging tortious interference with contract and other related torts by the Company ("Essex Company vs. Wackenhut Services, Inc.," Case No. 94-908 JC/DJS United States District Court for the District of New Mexico). The reserves previously provided by the Company are adequate to cover the exposure in this matter. The Company is presently, and is from time to time, subject to claims arising in the ordinary course of its business. In certain of such actions, plaintiffs request punitive or other damages that may not be covered by insurance. In the opinion of management, the various asserted claims and litigation in which the Company is currently involved will not materially affect its financial position or future operating results, although no assurance can be given with respect to the ultimate outcome for any such claim or litigation. The foregoing opinion is based in part upon the fact that the Company believes it has established adequate reserves for litigation contingencies in its financial statements in accordance with generally accepted accounting principles. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT GEORGE R. WACKENHUT has been Chairman of the Board and Chief Executive Officer of the Company since its inception. He was President of the Company from the time it was founded until April 26, 1986. He formerly was a Special Agent of the Federal Bureau of Investigation. Mr. Wackenhut is also a director of WCC. Mr. Wackenhut is on the Dean's Advisory Board of the University of Miami School of Business. He is on the National Council of Trustees, Freedoms Foundation at Valley Forge, and the President's Advisory Council for the Small Business Administration, Region IV. He is a past participant in the Florida Governor's War on Crime and a past member of the Law Enforcement Council, National Council on Crime and Delinquency, and the Board of Visitors of the U.S. Army Military Police School and the Board of Directors of SSJ Medical Development, Inc., Miami, Florida. Mr. Wackenhut is also a member of the American Society for Industrial Security. He was a recipient in 1990 of the Labor Order of Merit, First Class, from the government of Venezuela. Mr. Wackenhut received his B.S. degree from the University of Hawaii and his M.Ed. degree from Johns Hopkins University. Mr. Wackenhut is married to Ruth J. Wackenhut, Secretary of the Company. His son, Richard R. Wackenhut, is President and Chief Operating Officer of the Company and also a Director. RICHARD R. WACKENHUT has been President and Chief Operating Officer of the Company and a member of the Board of Directors since April 26, 1986, and was formerly Senior Vice President of Operations from 1983 to 1986. He was Manager of Physical Security from 1973 to 1974. He also served as Manager, Development at the Company's Headquarters from 1974 to 1976; Area Manager, Columbia, South Carolina, from 1976 to 1977; District Manager, Columbia, South Carolina from 1977 to 1979; Director, Physical Security Division at Corporate Headquarters from 1979 to 1980; Vice President, Operations from 1981 to 1982; and Senior Vice President, Domestic Operations from 1982 to 1983. Mr. Wackenhut is Director of Wackenhut del Ecuador, S.A.; Wackenhut UK Limited; Wackenhut Dominicana, S.A.; and several domestic subsidiaries of the Company, including WCC. He is a member of the St. Thomas University Advisory Board. He is also a member of the American Society for Industrial Security, the International Association of Chiefs of Police and the International Security Management Association. He received his B.A. degree from The Citadel in 1969 and completed the Advanced Management Program of the Harvard University School of 13 Business Administration in 1987. Mr. Wackenhut is the son of George R. Wackenhut, Chairman of the Board and Chief Executive Officer of the Company, and Ruth J. Wackenhut, Secretary of the Company. ALAN B. BERNSTEIN has been Executive Vice President of the Company and President, Domestic Operations Group since April 27, 1991. Prior to that, Mr. Bernstein was Senior Vice President, Domestic Operations from 1986 to 1991. He has been employed by the Company since 1976, except for a brief absence during 1982 when he was a partner in a family-owned security alarm business in New York State. Mr. Bernstein has served in the following positions with the Company or its subsidiaries: Vice President of Domestic Operations, 1985; Vice President, Corporate Business Development, 1984; Acting President, Wackenhut Systems Corporation, 1983; Director of Integrated Guard Security, 1981; and Manager of Wackenhut Electronic Systems Corporation (Miami) from 1976 to 1981. He received his B.S.E.E. degree from the University of Rochester, and an M.B.A. degree from Cornell University. FERNANDO CARRIZOSA has been Senior Vice President, International Operations since January 28, 1989. Mr. Carrizosa was Vice President of International Operations from January 31, 1988 to January 28, 1989. He joined Wackenhut de Colombia in 1968 as Manager of Investigations. He was promoted to Manager of Human Resources, and then to Assistant to the President in 1974. He moved to Headquarters as a trainee in 1974, and was promoted to Manager of Latin American Operations in 1980, a capacity in which he served until 1983. Mr. Carrizosa also served as Executive Vice President of Wackenhut International, 1983 to 1984 and President of Wackenhut International, 1984 to 1988. He is a Director of several subsidiaries and affiliates of the Company. He received a B.B.A. from Universidad Javeriana in Colombia, and an M.B.A. with honors from Florida International University in 1976. TIMOTHY P. COLE has been Executive Vice President and President, Government Services Group since April 27, 1991. Mr. Cole was Senior Vice President Government Services from 1989 to 1991. He joined the Company as President of Wackenhut Services, Inc. in 1988. Mr. Cole was associated with the Martin Marietta Corporation from 1982 to 1988 and served in various capacities, including Program Director and Director of Subcontracts. He received his B.B.A. degree from the University of Oklahoma and his M.B.A. from Pepperdine University. Mr. Cole completed the Advanced Management Program of the Harvard University Graduate School of Business Administration in 1987. Mr. Cole is also the Chairman of the Board of Directors of WCC. ROBERT C. KNEIP has been the Senior Vice President, Corporate Planning and Development of the Company since 1988. He joined the Company in 1982. Mr. Kneip has held various positions in the Company including Director, Power Generating Services; Director, Contracts Management; Vice President, Contracts Management; and Vice President, Planning and Development. Prior to joining the Company, Mr. Kneip was employed by the Atomic Energy Commission, the Nuclear Regulatory Commission and Dravo Utility Constructors, Inc. He received a B.A. (Honors) from the University of Iowa, and an M.A. and Ph.D. from Tulane University. JAMES P. ROWAN is Vice President and General Counsel, and Assistant Secretary of the Company. He joined the Company in 1979 as Assistant General Counsel, became Associate General Counsel in 1982 and a Vice President in 1986. He is an attorney admitted to the Bar of the States of Indiana, Iowa and Michigan. He holds degrees of B.S.C. (Accounting) and J.D. (Law) from the University of Iowa. DANIEL E. MASON has been Vice President and Chief Financial Officer, Domestic Operations Group since June 1992. Prior to that he was Controller, Domestic Operations, since joining the Company in June 1990. Mr. Mason came to the Company from Coastal Corporation, where he was Corporate Controller of its Miami-based, refined products marketing subsidiary, Coastal Fuels Marketing, Inc. During his eleven years at Coastal, he held various positions including Manager of Accounting Services, Director of Planning and Analysis, and Division Controller, Retail Operations. Mr. Mason received his B.S. in Accounting from Florida International University and an M.B.A. from the University of Miami. RUTH J. WACKENHUT has been Secretary of the Company since 1958. She is married to George R. Wackenhut, Chairman of the Board and Chief Executive Officer of the Company and her son, Richard R. Wackenhut, is President and Chief Operating Officer of the Company and also a director. 14 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS On October 31, 1995, the Company declared a 25% stock dividend, effected in the form of a stock split (the 25% stock dividend), paid on January 9, 1996 to stockholders of record at the close of business on December 22, 1995. The 25% stock dividend was paid in Series B Common Stock to holders of the Company's Series A Common Stock and Series B Common Stock. The accompanying Consolidated Financial Statements have been retroactively restated to reflect the 25% stock dividend. Regular quarterly dividends of $.0575 and $.0600 per share (adjusted for the 25% stock dividend) on both outstanding Series A Common Stock and Series B Common Stock were declared and paid by the Company for each of the four quarters of fiscal years ended January 1, 1995 and December 31, 1995, respectively. The Company intends to declare future quarterly dividends on Series A Common Stock and Series B Common Stock, depending on its earnings, financial condition, capital requirements and other relevant factors. The ensuing table shows the high and low prices for the Company's Series A Common Stock and Series B Common Stock, as reported on the New York Stock Exchange, for each quarterly period during fiscal years ended January 1, 1995 and December 31, 1995, respectively. The prices shown in the table have been rounded to the nearest 1/8th and reflect the 25% stock dividend. The approximate number of record holders of Series A Common Stock and Series B Common Stock, as of February 22, 1996 was 876 and 943, respectively.
Fiscal 1994 Fiscal 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Series A Series B Series A Series B - ------------------------------------------------------------------------------------------------------------------------------------ Quarter High Low High Low High Low High Low - ------------------------------------------------------------------------------------------------------------------------------------ First $ 9-1/4 $ 7-7/8 $ 7-3/8 $6-3/8 $ 14 $ 8-3/8 $12-3/4 $ 8-1/2 Second 9-3/4 8-1/8 7-1/2 6 15-1/4 10-7/8 12-3/8 9 Third 10-3/8 8-3/4 9 6-5/8 12-3/4 11-1/8 11-1/4 9-7/8 Fourth 10-1/4 7-1/4 8-7/8 6-7/8 14-1/2 12 12-3/4 10-3/8
ITEM 6. SELECTED FINANCIAL DATA The selected financial data for the Company set forth below with respect to the Statement of Income Data and Balance Sheet Data for and at the end of the Company's fiscal years ended December 29, 1991 ("Fiscal 1991"), January 3, 1993 ("Fiscal 1992"), January 2, 1994 ("Fiscal 1993"), January 1, 1995 ("Fiscal 1994") and December 31, 1995 ("Fiscal 1995") are derived from the Consolidated Financial Statements of the Company. The Selected Financial Data should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K.
FISCAL(1) -------------------------------------------------------------- 1991 1992 1993 1994 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT FOR SHARE DATA) STATEMENT OF INCOME DATA(2): Revenues................................................. $570,411 $615,378 $659,256 $726,753 $796,732 Non-recurring charges.................................... -- -- (1,726) -- -- Write-down of headquarters building...................... -- -- -- (8,700)(3) -- Operating income......................................... 13,859 3,367 4,496 6,592 15,774 Income before income taxes............................... 11,867 1,588 3,371 3,002 13,733 Provision for income taxes............................... 4,378 834 485 17 4,742 Income before extraordinary charge and cumulative effect of accounting change................. 7,721 1,137 3,609 2,272 7,260 Extraordinary charge -- early extinguishment of debt, net of income taxes.................................... -- -- (1,444) (887) -- Cumulative effect of accounting change for income taxes.................................................. -- 7,370 -- -- -- Net income............................................... 7,721 8,507 2,165 1,385 7,260 ======== ======== ======== ======== ======== Income per share before extraordinary charge and cumulative effect of accounting change................. $ .64 $ .09 $ .30 $ .19 $ .60 Extraordinary charge per share -- early extinguishment of debt, net of income taxes.................................... -- -- (.12) (.08) -- Cumulative effect per share of accounting change for income taxes........................................... -- .61 -- -- -- -------- -------- -------- -------- -------- Net income per share..................................... $ .64 $ .70 $ .18 $ .11 $ .60 Total dividends per share................................ $ .19 $ .20 $ .23 $ .23 $ .24
END OF YEAR ------------------------------------------------------------ 1991 1992 1993 1994 1995 -------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital............................................ $ 48,599 $ 56,932 $ 56,163 $ 75,589 $ 49,638 Total assets............................................... 172,093 192,236 211,297 212,757 197,927 Current portion of long-term debt.......................... 730 730 10,456 -- 11 Long-term debt............................................. 46,920 63,260 57,484 38,991 5,376 Total debt................................................. 47,650 63,990 67,940 42,756 6,502 Shareholders' equity....................................... 42,847 47,587 47,362 57,459 62,904
- --------------- (1) The Company's fiscal year ends on the Sunday closest to the calendar year end. Fiscal 1991, Fiscal 1993, Fiscal 1994 and Fiscal 1995 each included 52 weeks. Fiscal 1992 included 53 weeks. (2) Per share amounts are restated to reflect a 100% stock dividend declared in Fiscal 1992, a 25% stock dividend declared during Fiscal 1994 and a 25% stock dividend declared during Fiscal 1995 (in each case, effected in the form of a stock split). (3) In Fiscal 1994, the Company recognized a one-time operating expense of $8,700,000 in connection with the writedown of its former headquarters building. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Since its inception in 1954, the Company has become a leading international provider of security-related and other support services and a leading developer and manager of privatized correctional and detention facilities. The Company provides security-related and other support services through the Services Business and correctional services through the Correctional Business. Through the Services Business, the Company provides physical security services, food services and other related services to commercial and governmental customers. Through the Correctional Business, the Company provides correctional and detention facility design, development and management services to government agencies. The Company is managed through three operating groups: the Domestic Operations Group, the Government Services Group and the International Group. The Services Business is operated through all three groups, while the Correctional Business is operated by the Government Services Group exclusively through the Company's 55%-owned WCC subsidiary. For presentation purposes, the financial results of WCC are described separately from the results of the Government Services Group's other operations. From a well established base in its core security-related services business, the Company has expanded into a range of other support services in response to a trend toward privatization of governmental services and outsourcing by commercial customers of non-core support functions. For example, in 1984 the Company expanded into the Correctional Business which in Fiscal 1995 increased its revenues by 18.3% and operating income by 62.6% from Fiscal 1994. Moreover, in Fiscal 1992 the Company entered the foodservice business for correctional institutions, which in Fiscal 1995 generated $34.7 million in revenues. The Company continues to expand its market presence in these areas and, consistent with that strategy, acquired the contracts and certain assets of the Correctional Food Service Division of Service America Corporation in early 1996. The Company continues to explore and may selectively invest in other service businesses such as temporary services, building maintenance, supplemental police services, crash-fire-rescue services, fire protection services, and airport services. During Fiscal 1995, the Company continued to achieve sustained growth. Between Fiscal 1991 and Fiscal 1995, the Company's consolidated revenues increased at a compound annual growth rate of 8.7%, including a 9.6% increase from Fiscal 1994 to Fiscal 1995. The Domestic Operations Group lead the growth in revenues of the Services Business with an increase of 11.2% to $423.7 million in Fiscal 1995 from $380.9 million in Fiscal 1994, which was attributable to: (i) a significant increase in revenues derived from the provision of core security-related services to National Accounts; (ii) an increase in its CPO business; and (iii) expansion of market share in the correctional foodservice business. The International Group also achieved significant growth, with revenues increasing 25.9% to $113.2 million in Fiscal 1995 from $89.9 million in Fiscal 1994. The increase in revenues was principally attributable to steady geographical expansion, including expansion in the Central and South American and European operations. Government Services Group (excluding WCC) revenues decreased 6.5% to $166.0 million in Fiscal 1995 from $177.6 million in Fiscal 1994, primarily as a result of reductions in government funding for security at United States Department of Energy facilities. Contracts with the Department of Energy are typically cost reimbursable contracts for which the Company can earn award fees based on performance factors. Although award fee pools available to the Company have not been reduced significantly, further reductions in revenues could impact profit contribution from these contracts. During Fiscal 1995, WCC continued to generate sustained growth. Between Fiscal 1991 and Fiscal 1995, WCC generated compound annual revenue growth of 27.3%, which included an 18.3% increase in Fiscal 1995. Operating income increased 62.6% in Fiscal 1995, and has grown from $1.7 million in Fiscal 1991 to $7.2 million in Fiscal 1995. Revenue and operating income increases reflect an increase from eight facilities 16 and 1.0 million compensated resident days in Fiscal 1991 to 16 facilities and 2.4 million compensated resident days in Fiscal 1995. In December 1995, the Company sold its headquarters building in Coral Gables, Florida, and subsequently relocated to a newly constructed, leased building in Palm Beach Gardens, Florida. The move to a more efficient building in a less expensive location should result in reduced annual operating costs. However, a one-time $750,000 charge against first quarter 1996 earnings is anticipated for the cost of the move. RESULTS OF OPERATIONS The table below summarizes results of operations for the Company's two business segments by organizational group.
% CHANGE % CHANGE FISCAL VS. FISCAL FISCAL VS. FISCAL FISCAL 1993 1993 1994 1994 1995 -------- ---------- -------- ---------- -------- (IN THOUSANDS) REVENUES: Services Business Domestic Operations Group................................... $336,048 13.4% $380,941 11.2% $423,743 Government Services Group (excluding WCC)................... 184,915 (3.9) 177,613 (6.5) 166,035 International Group......................................... 82,759 8.6 89,900 25.9 113,205 Other....................................................... 1,019 19.9 1,222 (6.6) 1,141 Inter-Group Revenues........................................ (4,269) -- (6,949) -- (6,823) -------- ----- -------- ----- -------- 600,472 7.0 642,727 8.5 697,301 Correctional Business -- WCC.................................. 58,784 42.9 84,026 18.3 99,431 -------- ----- -------- ----- -------- Consolidated Revenues......................................... $659,256 10.2% $726,753 9.6% $796,732 -------- ----- -------- ----- -------- OPERATING INCOME: Services Business Domestic Operations Group................................... $ 10,434 24.4% $ 12,977 4.0% $ 13,501 Government Services Group (excluding WCC)................... 3,499 47.5 5,162 (44.4) 2,871 International Group......................................... 2,164 38.3 2,992 (7.0) 2,783 Corporate Expenses and Underwriting Losses.................. (13,047) 21.2 (10,285) (3.2) (10,610) -------- ----- -------- ----- -------- 3,050 255.6 10,846 (21.2) 8,545 Correctional Business -- WCC.................................. 1,446 207.5 4,446 62.6 7,229 Write-down of Headquarters Building........................... -- -- (8,700) -- -- -------- ----- -------- ----- -------- Consolidated Operating Income................................. $ 4,496 46.6% $ 6,592 139.3% $ 15,774 -------- ----- -------- ----- --------
COMPARISON OF FISCAL 1995 TO FISCAL 1994 REVENUES Consolidated revenues increased 9.6% to $796.7 million in Fiscal 1995 from $726.7 million in Fiscal 1994. SERVICES BUSINESS Services Business revenues increased 8.5% to $697.3 million in Fiscal 1995 from $642.7 million in Fiscal 1994. Domestic Operations Group. Domestic Operations Group revenues increased 11.2% to $423.7 million in Fiscal 1995 from $380.9 million in Fiscal 1994. Within the Domestic Operations Group, revenues from the Security Services Division increased 11.2% to $336.2 million in Fiscal 1995 from $302.4 million in Fiscal 1994 as a result of: (i) a significant increase in revenues derived from the provision of security-related services to National Accounts; and (ii) an increase in its CPO business reflecting the growing demand for the specialized services offered in this area. Revenues from the Food Services Division increased 39.6% to $34.7 million in Fiscal 1995 from $24.9 million in Fiscal 1994, reflecting the Company's increased presence in the growing correctional foodservice market. Revenues from the Nuclear Division remained relatively unchanged from 17 Fiscal 1994 to Fiscal 1995, reflecting the maturation of the nuclear power industry and limited opportunities for growth in this market. Government Services Group. Government Services Group revenues (excluding WCC) decreased 6.5% to $166.0 million in Fiscal 1995 from $177.6 million in Fiscal 1994. Within the Government Services Group, revenues of Wackenhut Services, Inc. decreased 5.6% to $146.7 million in Fiscal 1995 from $155.5 million in Fiscal 1994, principally due to reductions in government funding for security at United States Department of Energy facilities. Management believes this reduction in funding will continue to affect Government Services Group revenues and operating income. Revenues of Wackenhut Educational Services, Inc. decreased 40.3% to $13.1 million in Fiscal 1995 from $22.0 million in Fiscal 1994, principally due to the loss of two contracts. The decrease in Government Services Group revenues in Fiscal 1995 was partially offset by revenues of $6.1 million generated by the Wackenhut of Australia subsidiary, which was acquired in Fiscal 1995, and provides security-related services. International Group. International Group revenues increased 25.9% to $113.2 million in Fiscal 1995 from $89.9 million in Fiscal 1994, as this group continued to experience steady geographical expansion. The increase in revenues was principally attributable to: (i) increased revenues from Central and South American operations, where revenues increased 21.2% to $83.4 million in Fiscal 1995 from $68.8 million in Fiscal 1994; and (ii) increased revenues from European operations, which increased 40.0% to $15.0 million in Fiscal 1995 from $10.7 million in Fiscal 1994. The increase in international revenues reflects returns on past investment in new markets as well as continuing increased demand for physical security services in those geographic regions serviced by the Company. CORRECTIONAL BUSINESS The Correctional Business revenues increased 18.3% to $99.4 million in Fiscal 1995 from $84.0 million in Fiscal 1994. Of the increase in Fiscal 1995 revenues, $11.9 million was generated by domestic operations and $3.5 million was generated by operations in Australia. The increase in domestic revenues of WCC in Fiscal 1995 was primarily attributable to an increase in compensated resident days to 1.9 million in Fiscal 1995 from 1.7 million in Fiscal 1994, reflecting: (i) increased occupancy at two facilities opened in late 1994; (ii) the opening of two facilities in the second half of 1995; and (iii) the expansion of one facility in 1995. The increase in domestic revenues also reflected management fees generated from the development of four facilities. The increase in international revenues of WCC in Fiscal 1995 was primarily attributable to an increase in compensated resident days to 420,000 in Fiscal 1995 from 371,000 in Fiscal 1994, reflecting the expansion of one facility in Australia, and an increase in management fees generated from the development of another facility in Australia. In Fiscal 1995, "pass-through" revenues and expenses were reclassified to exclude amounts related to construction and design activities, consistent with industry practice. As a result, only management fees for development and design services are included in revenues. All prior periods have been restated to reflect this reclassification. See Note 1 of Notes to the Consolidated Financial Statements. OPERATING INCOME Consolidated operating income increased to $15.8 million in Fiscal 1995 from $6.6 million in Fiscal 1994, which included an $8.7 million write-down of the headquarters building in Fiscal 1994. SERVICES BUSINESS Operating income from the Services Business decreased 21.2% to $8.5 million in Fiscal 1995 from $10.8 million in Fiscal 1994. Domestic Operations Group. Domestic Operations Group operating income increased 4.0% to $13.5 million in Fiscal 1995 from $13.0 million in Fiscal 1994. The growth in operating income within the 18 Domestic Operations Group was a result of: (i) continued strong performance in the core security-related services business, particularly in National Accounts; (ii) increased demand for Custom Protection Officers; (iii) continued development of the foodservice business. Government Services Group. Government Services Group (excluding WCC) operating income decreased 44.4% to $2.9 million in Fiscal 1995 from $5.2 million in Fiscal 1994, reflecting: (i) lower than expected ratings at one facility, resulting in a decrease in award fees paid to the Company by the United States Department of Energy for such facility; and (ii) the termination of two contracts in Wackenhut Educational Services, Inc. International Group. International Group operating income decreased 7.0% to $2.8 million in Fiscal 1995 from $3.0 million in Fiscal 1994. The principal contribution to operating income of the International Group was made by subsidiaries in Central and South America and Europe. However, development costs in the Far East and Africa substantially offset gains in Central and South America and Europe. CORRECTIONAL BUSINESS WCC operating income increased 62.6% to $7.2 million in Fiscal 1995 from $4.4 million in Fiscal 1994. WCC domestic operating income increased 112.3% to $4.5 million in Fiscal 1995 from $2.1 million in Fiscal 1994, reflecting: (i) increased occupancy at two facilities opened in late Fiscal 1994; (ii) the opening of two facilities in the second half of Fiscal 1995; and (iii) the expansion of one facility in Fiscal 1995. The increase in domestic operating income also reflected management fees generated from the development of four facilities. WCC international operating income increased 17.3% to $2.7 million in Fiscal 1995 from $2.3 million in Fiscal 1994. The increase in operating income reflects the expansion of one facility in Australia and management fees generated from the development of another facility in Australia. OTHER EXPENSE Other expense decreased 43.2% to $2.0 million in 1995 from $3.6 million in 1994, principally due to a decrease of $1.7 million in interest expense attributable to a reduction in funding requirements. In addition there was a decrease of $199,000 in interest and investment income which was principally due to a decrease in fixed income securities investment holdings of the Company's captive reinsurance subsidiary. The proceeds from the Company's sales of these securities were used primarily to reduce the Company's debt. INCOME BEFORE INCOME TAXES Income before income taxes increased to $13.7 million in Fiscal 1995 from $3.0 million in Fiscal 1994, which included an $8.7 million write-down of the headquarters building in Fiscal 1994. The combined federal and state effective income tax rate was 34.5% for Fiscal 1995 and 0.6% for Fiscal 1994, respectively. The lower effective rate in Fiscal 1994 primarily reflected reductions in the statutory rate attributable to tax exempt interest income, targeted job credits and the utilization of capital loss carryforwards which was significantly higher in 1994. MINORITY INTEREST EXPENSE Minority interest expense (net of income taxes) increased to $2.4 million in Fiscal 1995 from $1.0 million in Fiscal 1994, reflecting the increase in earnings of WCC and other majority-owned international subsidiaries of the Company. 19 EQUITY INCOME OF FOREIGN AFFILIATES Equity income of foreign affiliates (net of income taxes) increased 120.6% to $631,000 in Fiscal 1995 from $286,000 in Fiscal 1994 primarily resulting from increased earnings of security services affiliates in South America and Europe and decreased losses from WCC's joint venture in the United Kingdom. EXTRAORDINARY CHARGE In Fiscal 1994, the Company prepaid a note to an insurance company and recognized an extraordinary charge of $887,000 (net of income taxes) for the early extinguishment of such debt. NET INCOME Net income increased to $7.3 million in Fiscal 1995, or $0.60 per share, compared to $1.4 million, or $0.11 per share in Fiscal 1994, after the $887,000 extraordinary charge and the write-down of the headquarters building ($5.4 million net of income taxes). COMPARISON OF FISCAL 1994 TO FISCAL 1993 REVENUES Consolidated revenues increased 10.2% to $726.7 million in Fiscal 1994 from $659.2 million in Fiscal 1993. SERVICES BUSINESS Revenues from the Services Business increased 7.0% to $642.7 million in Fiscal 1994 from $600.5 million in Fiscal 1993. Domestic Operations Group. Domestic Operations Group revenues increased 13.4% to $380.9 million in Fiscal 1994 from $336.0 million in Fiscal 1993. Revenues from the Security Services Division of the Domestic Operations Group contributed $37.4 million to this increase in Fiscal 1994 largely due to the success in obtaining National Accounts with major corporations in the second half of Fiscal 1993 and in Fiscal 1994. In Fiscal 1994 the Company was also awarded a $34.7 million contract with the State of Hawaii to supply security services at eight airports. CPO revenues increased $14.3 million (35.9%) over Fiscal 1993. Revenues of the Nuclear Division remained essentially flat in Fiscal 1994, reflecting the maturation of the nuclear power industry and limited opportunities for growth in this market. Food Services Division revenues increased 36.0% to $24.9 million in Fiscal 1994 from $18.3 million in Fiscal 1993. Government Services Group. Government Services Group revenues (excluding WCC) decreased 3.9% to $177.6 million in Fiscal 1994 from $184.9 million in Fiscal 1993. Revenues of Wackenhut Services, Inc. decreased $8.1 million as a result of reductions in manpower requirements by the Department of Energy. The decrease in the Government Services Group revenues in Fiscal 1994 was partially offset by an increase at Wackenhut Educational Services, Inc. of $3.4 million (18.4%) over Fiscal 1993. International Group. The International Group revenues increased 8.6% to $89.9 million in Fiscal 1994 from $82.8 million in Fiscal 1993 primarily due to growth in Central and South America. CORRECTIONAL BUSINESS Correctional Business revenues increased 42.9% to $84.0 million in Fiscal 1994 from $58.8 million in Fiscal 1993. This increase was primarily generated by international operations due to the consolidation of Australasian Correctional Management Pty Limited ("ACM") and the opening of two facilities in Fiscal 1994. 20 OPERATING INCOME Consolidated operating income, which included an $8.7 million write-down of the headquarters building in Fiscal 1994, increased to $6.6 million in Fiscal 1994 from $4.5 million in Fiscal 1993. SERVICES BUSINESS Operating income from the Services Business increased to $10.8 million in Fiscal 1994 from $3.0 million in Fiscal 1993. Domestic Operations Group. Domestic Operations Group operating income increased 24.4% to $13.0 million in Fiscal 1994 from $10.4 million in Fiscal 1993. This increase was principally due to improvements in the profit contribution of the core security-related services business. Government Services Group. Government Services Group operating income (excluding WCC) increased 47.5% to $5.2 million in Fiscal 1994 from $3.5 million in Fiscal 1993. The increase was principally due to higher award fees resulting from excellent ratings at Department of Energy facilities. In addition, two unprofitable divisions of the Government Services Group which had combined losses of $2.0 million in Fiscal 1993 were sold in that year. International Group. International Group operating income increased 38.3% to $3.0 million in Fiscal 1994 from $2.2 million in Fiscal 1993. This increase was principally due to growth in Central and South America. CORPORATE EXPENSES AND UNDERWRITING LOSSES The decrease in Corporate Expenses and Underwriting Losses in Fiscal 1994 resulted principally from a decrease in underwriting losses of the Company's captive reinsurance subsidiary. CORRECTIONAL BUSINESS Operating income from the Correctional Business increased 207.5% to $4.4 million in Fiscal 1994 from $1.4 million in Fiscal 1993. This increase was primarily attributable to the consolidation of ACM and the opening of two facilities. OTHER EXPENSE Other expense was $3.6 million in Fiscal 1994 compared to $1.1 million in Fiscal 1993, resulting from the following factors. First, interest expense amounted to $5.1 million and exceeded the previous year by $874,000. Second, the liquidation of investments of the captive reinsurance subsidiary to reduce corporate debt resulted in lower interest and investment income ($1.6 million) to the Company. INCOME BEFORE INCOME TAXES Income before income taxes, which included an $8.7 million write-down of the headquarters building in Fiscal 1994, was $3.0 million in Fiscal 1994 compared to $3.4 million in Fiscal 1993. The provision for income taxes in 1994 was $17,000, reflecting an effective income tax rate of 0.6% due to partial utilization of capital loss carryforwards, targeted job tax credits and tax exempt interest income of the captive reinsurance subsidiary. The effective income tax rate was 14.4% in Fiscal 1993 due to similar factors, and a favorable federal income tax adjustment of $637,000 that resulted from a revenue agent's examination for the years 1980 to 1986. MINORITY INTEREST EXPENSE Minority interest expense (net of income taxes) increased $637,000 reflecting the sale of a minority interest in WCC. 21 EQUITY INCOME OF FOREIGN AFFILIATES Equity income of foreign affiliates (net of income taxes) decreased $799,000 to $286,000 in Fiscal 1994 from $1.1 million in Fiscal 1993, mainly as a result of the consolidation of ACM in Fiscal 1994. INCOME BEFORE EXTRAORDINARY CHARGE Income before extraordinary charge was $2.3 million or $0.19 per share in Fiscal 1994. In Fiscal 1993, net income before extraordinary charge was $3.6 million, or $0.30 per share, restated for the stock dividends declared in Fiscal 1995 and Fiscal 1994. EXTRAORDINARY CHARGE In Fiscal 1994, the Company prepaid a senior note to an insurance company and recognized an extraordinary charge for the early extinguishment of debt in the amount of $887,000 (net of income taxes). The Company also recognized a $1.4 million extraordinary charge (net of income taxes) for the early extinguishment of another senior note in Fiscal 1993. NET INCOME Net income, which included an $8.7 million ($5.4 million net of income taxes) write-down of the Company's headquarters building, was $1.4 million in Fiscal 1994, or $0.11 per share, compared to $2.2 million, or $0.18 per share in 1993, both restated for stock dividends declared in Fiscal 1995 and Fiscal 1994. INFLATION Management believes that inflation has not had a material effect on the Company's results of operations during the past three fiscal years. However, many of the Company's service contracts provide for either fixed management fees or for fees that increase by only small amounts during the terms of the contracts. Since personnel costs represent the Company's largest expense, inflation could have a substantial adverse effect on the Company's results of operations in the future to the extent that wages and salaries increase at a faster rate than the per diem or fixed rates received by the Company for its services. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of funds have been, and are expected to continue to be, cash flows from operations and borrowings under lines of credit provided by banks in the United States and abroad. Cash and cash equivalents amounted to $20.2 million at December 31, 1995 compared to $13.8 million at January 1, 1995. Of this cash and cash equivalents, $9.3 million serves as collateral for certain obligations of the Company's captive reinsurance subsidiary. The Company has additional sources of liquidity available in the form of a $50 million revolving line of credit and a $50 million accounts receivable securitization facility. Additionally, at December 31, 1995, WCC had in place a $15 million revolving line of credit, and subsidiaries of the Company and WCC had in place credit agreements with banks providing Australian $9.5 million (approximately $7.1 million U.S. at December 31, 1995). WCC's $15 million revolving line of credit contains certain covenants that restrict WCC's ability to pay dividends to the Company. At December 31, 1995, the Company had $1.4 million outstanding under its $50 million revolving line of credit and $36 million outstanding in the form of letters of credit securing reserves of the captive reinsurance subsidiary and other corporate transactions. The unused portion of the revolving line of credit was $12.6 million at December 31, 1995. In addition, at December 31, 1995, the Company had sold $35 million of accounts receivable under its accounts receivable securitization facility. Under the terms of the accounts receivable securitization facility, the Company retains substantially the same risk of credit loss as if receivables had not been sold under this facility. At December 31, 1995, WCC and the subsidiaries of the Company and 22 WCC had $5.1 million outstanding under their credit agreements. At December 31, 1995 and January 1, 1995, the ratio of total debt to total capitalization was 9.4% and 42.7%, respectively. See Note 5 to the Consolidated Financial Statements. WCC anticipates making cash investments in connection with future acquisitions. In addition, in line with a developing industry trend toward requiring private operators to make capital investments in facilities and to enter into direct financing arrangements in connection with the development of such facilities, WCC plans to use part of the net proceeds of $51.8 million from the January 1996 public offering of shares of its common stock to finance start-up costs, leasehold improvements and equity investments in facilities, if appropriate, in connection with undertaking new contracts. In connection with the award of one project, WCC recently has agreed to make an approximate $4.0 million equity investment in the project and to assist in the financing of the project by guaranteeing up to approximately $20.0 million of the permanent pass-through financing. The governmental entity that has contracted for the project is the ultimate pass-through source of payments and the recourse obligations of WCC and the subsidiary through which it will hold its investment in the project are substantially limited in type and likelihood. WCC and its subsidiary have made application to restructure the pass-through financing to a non-recourse basis. WCC has structured the transaction so that the financing for the project will be repaid from funds generated by the project. In addition, to the extent that WCC elects to receive dividends from its subsidiary, it will be required to arrange for a letter of credit in favor of the subsidiary to provide security for the payment of certain possible future tax obligations of the subsidiary. The letter of credit will not be issued any earlier than the second half of 1997 and, consequently, any financing arrangements with respect to such letter of credit have not been determined. The Company does not believe that the issuance of the letter of credit will have a material impact on its liquidity or capital resources or the liquidity or capital resources of WCC. Net cash generated by operating activities was $13.3 million in Fiscal 1995 compared to $13.0 million in Fiscal 1994. Cash used in investing activities amounted to $9.3 million in Fiscal 1995. Capital expenditures of $6.9 million reflect purchases of equipment related to the provision of security-related services and investments in facilities by WCC. In the second half of Fiscal 1995, the Company acquired the contracts and certain assets of Protection Management International Pty., Ltd. and Checkmate Security Group, two companies in Australia engaged in the Services Business for $2.6 million. In December 1995, the Company sold its headquarters building in exchange for a $9.0 million first mortgage note and $1.7 million in cash (after payment of related expenses). Cash provided by financing activities amounted to $2.4 million in Fiscal 1995. In Fiscal 1995, the Company sold certain receivables for $35 million in cash to prepay amounts outstanding under the mortgage on the Company's headquarters building and to reduce the amounts outstanding under the Company's revolving loan. Cash dividends paid in Fiscal 1995 amounted to $2.9 million. Current cash requirements consist of amounts needed for capital expenditures, increased working capital needs resulting from corporate growth, payment of liabilities incurred in the operation of the Company's business, the renovation or construction of correctional facilities by WCC, possible acquisitions and the payment of dividends. The Company continues to expand its domestic and international businesses and to pursue major contracts, some of which may require substantial initial cash outlays, which are partially or fully recoverable over the original term of the contract. Subsequent to year end, WCC sold 2.3 million shares of its common stock at a price of $24.00 per share. Such proceeds are only available to WCC. The offering resulted in net proceeds to WCC of approximately $51.8 million. Management believes that cash on hand, internally generated cash flows and available lines of credit will be adequate to support currently planned business expansion and various obligations incurred in the operation of the Company's business, both on a near term and long term basis. 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders of The Wackenhut Corporation: We have audited the accompanying consolidated balance sheets of The Wackenhut Corporation (a Florida corporation) and subsidiaries as of January 1, 1995 and December 31, 1995, and the related consolidated statements of income, cash flows and shareholders' equity for each of the three fiscal years in the period ended December 31, 1995. These financial statements are the responsibility of the corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Wackenhut Corporation and subsidiaries as of January 1, 1995 and December 31, 1995, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects of financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Miami, Florida, February 22, 1996. 24 THE WACKENHUT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JANUARY 1, 1995 AND DECEMBER 31, 1995
END OF PERIOD ------------------------- JANUARY 1, DECEMBER 31, 1995 1995 ---------- ------------ (IN THOUSANDS EXCEPT SHARE DATA) ASSETS CURRENT ASSETS Cash and cash equivalents..................................................... $ 13,808 $ 20,185 Accounts receivable, less allowance for doubtful accounts of $1,056 in 1994 and $1,268 in 1995.............................................................. 100,425 77,121 Inventories................................................................... 7,179 6,798 Other......................................................................... 16,233 18,058 ---------- ------------ 137,645 122,162 ---------- ------------ NOTES RECEIVABLE................................................................ 1,646 10,540 ---------- ------------ MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT -- CASUALTY REINSURANCE SUBSIDIARY.................................................................... 11,495 5,774 ---------- ------------ PROPERTY AND EQUIPMENT, AT COST................................................. 45,928 29,132 Accumulated depreciation...................................................... (15,102) (9,851) ---------- ------------ 30,826 19,281 ---------- ------------ DEFERRED TAX ASSET, NET......................................................... 11,021 6,170 ---------- ------------ OTHER ASSETS Investment in and advances to foreign affiliates, at cost, including equity in undistributed earnings of $2,066 in 1994 and $4,098 in 1995................. 6,165 10,984 Other......................................................................... 13,959 23,016 ---------- ------------ 20,124 34,000 ---------- ------------ $212,757 $197,927 ========= ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt............................................. $ -- $ 11 Notes payable................................................................. 3,765 1,115 Accounts payable.............................................................. 14,839 20,223 Accrued payroll and related taxes............................................. 25,761 29,602 Accrued expenses.............................................................. 17,095 21,456 Deferred tax liability, net................................................... 596 117 ---------- ------------ 62,056 72,524 ---------- ------------ RESERVES FOR LOSSES -- CASUALTY REINSURANCE SUBSIDIARY.......................... 38,450 40,118 ---------- ------------ LONG-TERM DEBT.................................................................. 38,991 5,376 ---------- ------------ OTHER........................................................................... 7,543 8,027 ---------- ------------ COMMITMENTS AND CONTINGENCIES (Notes 2, 4, 11 and 13)........................... MINORITY INTEREST............................................................... 8,258 8,978 ---------- ------------ SHAREHOLDERS' EQUITY Preferred stock, 10,000,000 shares authorized................................. -- -- Common stock, $.10 par value, 20,000,000 shares authorized Series A, 3,858,885 issued and outstanding in 1994 and 1995................. 386 386 Series B, 5,794,539 issued and outstanding in 1994 and 8,272,887 in 1995.... 579 827 Additional paid-in capital.................................................... 38,919 39,644 Retained earnings............................................................. 21,681 25,790 Cumulative translation adjustment............................................. (3,552) (3,702) Unrealized loss on marketable securities...................................... (554) (41) ---------- ------------ 57,459 62,904 ---------- ------------ $212,757 $197,927 ========= ============
The accompanying notes to consolidated financial statements are an integral part of these statements. 25 THE WACKENHUT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FISCAL YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31, 1995
FISCAL YEAR ------------------------------ 1993 1994 1995 -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) REVENUES....................................................... $659,256 $726,753 $796,732 -------- -------- -------- OPERATING EXPENSES Payroll and related taxes.................................... 491,408 538,297 587,644 Other operating expenses..................................... 161,626 173,164 193,314 Write-down of headquarters building.......................... -- 8,700 -- Non-recurring charges........................................ 1,726 -- -- -------- -------- -------- 654,760 720,161 780,958 -------- -------- -------- OPERATING INCOME............................................... 4,496 6,592 15,774 -------- -------- -------- OTHER INCOME (EXPENSE) Interest expense............................................. (4,230) (5,104) (3,356) Interest and investment income............................... 3,105 1,514 1,315 -------- -------- -------- (1,125) (3,590) (2,041) -------- -------- -------- INCOME BEFORE INCOME TAXES..................................... 3,371 3,002 13,733 PROVISION FOR INCOME TAXES..................................... 485 17 4,742 MINORITY INTEREST, NET OF INCOME TAXES......................... 362 999 2,362 EQUITY INCOME OF FOREIGN AFFILIATES, NET OF INCOME TAXES....... (1,085) (286) (631) -------- -------- -------- INCOME BEFORE EXTRAORDINARY CHARGE............................. 3,609 2,272 7,260 EXTRAORDINARY CHARGE -- EARLY EXTINGUISHMENT OF DEBT, NET OF INCOME TAXES................................................. (1,444) (887) -- -------- -------- -------- NET INCOME........................................... $ 2,165 $ 1,385 $ 7,260 ======== ======== ======== EARNINGS PER SHARE: Income before extraordinary charge........................... $ 0.30 $ 0.19 $ 0.60 Extraordinary charge -- early extinguishment of debt, net of income taxes.............................................. (0.12) (0.08) -- -------- -------- -------- Net income........................................... $ 0.18 $ 0.11 $ 0.60 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 26 THE WACKENHUT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FISCAL YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31, 1995
1993 1994 1995 ------- ------- ------- (IN THOUSANDS EXCEPT SHARE DATA) COMMON STOCK Series A Balance, beginning and end of year....................... $ 386 $ 386 $ 386 Number of shares, all years, beginning and end, 3,858,885.............................................. ------- ------- ------- Series B Balance, beginning of year............................... 386 386 579 25% stock dividends effected in the form of stock splits in 1994 and 1995.......................................... -- 193 242 Proceeds from the exercise of stock options.............. -- -- 6 ------- ------- ------- Balance, end of year..................................... 386 579 827 Number of shares, end of year, 3,858,885 in 1993, 5,794,539 in 1994 and 8,272,887 in 1995................ ------- ------- ------- ADDITIONAL PAID-IN CAPITAL Balance, beginning of year.................................. 26,234 26,234 38,919 Increase due to initial public offering of subsidiary's common stock and exercise of stock options............... -- 12,685 327 Proceeds from the exercise of stock options................. -- -- 398 ------- ------- ------- Balance, end of year........................................ 26,234 38,919 39,644 ------- ------- ------- RETAINED EARNINGS Balance, beginning of year.................................. 23,880 23,268 21,681 Net income.................................................. 2,165 1,385 7,260 Dividends................................................... (2,777) (2,779) (2,909) 25% stock dividend effected in the form of a stock split.... -- (193) (242) ------- ------- ------- Balance, end of year........................................ 23,268 21,681 25,790 ------- ------- ------- CUMULATIVE TRANSLATION ADJUSTMENT Balance, beginning of year.................................. (3,395) (3,058) (3,552) Translation adjustment...................................... 337 (494) (150) ------- ------- ------- Balance, end of year........................................ (3,058) (3,552) (3,702) ------- ------- ------- UNREALIZED (LOSS) GAIN ON MARKETABLE SECURITIES Balance, beginning of year.................................. 96 146 (554) Net unrealized (losses) gains for the year.................. 50 (700) 513 ------- ------- ------- Balance, end of year........................................ 146 (554) (41) ------- ------- ------- TOTAL SHAREHOLDERS' EQUITY.......................... $47,362 $57,459 $62,904 ------- ------- ------- DIVIDENDS PER SHARE Restated for the effects of the 25% stock dividends effected in the form of stock splits declared in 1994 and 1995.... $ 0.23 $ 0.23 $ 0.24 ======= ======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements. 27 THE WACKENHUT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FISCAL YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31, 1995
FISCAL YEARS ---------------------------- 1993 1994 1995 ------- ------- -------- (IN THOUSANDS) CASH FLOWS PROVIDED BY (USED IN): OPERATING ACTIVITIES Net income..................................................... $ 2,165 $ 1,385 $ 7,260 Adjustments -- Depreciation expense........................................ 4,354 4,374 4,489 Amortization expense........................................ 6,787 7,544 7,682 Provision for bad debts..................................... 735 508 863 Equity income, net of dividends............................. (1,487) (202) (562) Minority interests in net income............................ 548 1,514 3,579 Write-down of headquarters building......................... -- 8,700 -- Extraordinary loss on early extinguishment of debt.......... 2,348 1,344 -- Other....................................................... (75) (495) (424) Changes in assets and liabilities, net of acquisitions and divestiture -- (Increase) Decrease in assets: Accounts receivable....................................... (9,607) (5,745) (14,200) Inventories............................................... (4,985) (5,137) (5,497) Other current assets...................................... (3,006) (1,154) (5,207) Marketable securities and certificates of deposit......... (3,116) (1,352) 329 Other assets.............................................. (2,947) (3,567) (2,233) Deferred tax asset, net................................... 624 (4,647) 4,529 Increase (Decrease) in liabilities: Accounts payable and accrued expenses..................... 234 (2,981) 7,047 Accrued payroll and related taxes......................... 5,482 3,280 3,934 Deferred tax liability, net............................... (545) 596 (479) Reserves for losses of casualty reinsurance subsidiary.... 7,573 4,950 1,668 Other..................................................... 534 4,122 484 ------- ------- -------- Net Cash Provided By Operating Activities.............. $ 5,616 $13,037 $ 13,262 ------- ------- --------
(Continued) 28 THE WACKENHUT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) FISCAL YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31, 1995
FISCAL YEARS --------------------------------- 1993 1994 1995 --------- --------- --------- (IN THOUSANDS) INVESTING ACTIVITIES Net proceeds from initial public offering of subsidiary's common stock.............................. $ -- $ 17,626 $ -- Net proceeds from exercise of stock options of subsidiary............................................. -- -- 1,147 Payments on notes receivable.............................. 852 438 Payments for acquisitions, net of cash acquired........... -- (935) (2,606) Investment in and advances to foreign affiliates.......... (1,310) (732) (1,410) Capital expenditures...................................... (3,409) (5,091) (6,857) Proceeds from sales of marketable securities of casualty reinsurance subsidiary, net................... -- 14,000 6,227 Deferred charge expenditures.............................. -- (701) (7,430) Sale of headquarters building............................. -- -- 1,675 --------- --------- --------- Net Cash Provided By (Used In) Investing Activities...................................... (3,867) 24,605 (9,254) --------- --------- --------- FINANCING ACTIVITIES Proceeds from issuance of debt............................ 113,270 196,411 314,365 Payments on debt.......................................... (109,320) (225,287) (344,491) Dividends paid............................................ (2,777) (2,779) (2,909) Proceeds from the exercise of stock options............... -- -- 404 Proceeds from sales of accounts receivable................ -- -- 35,000 --------- --------- --------- Net Cash Provided By (Used In) Financing Activities...................................... 1,173 (31,655) 2,369 --------- --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS................... 2,922 5,987 6,377 CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR...................................... 4,899 7,821 13,808 --------- --------- --------- CASH AND CASH EQUIVALENTS, AT END OF YEAR................... $ 7,821 $ 13,808 $ 20,185 ========= ========= ========= SUPPLEMENTAL DISCLOSURES: Cash paid during the year for: Interest............................................... $ 4,172 $ 4,209 $ 3,366 Income taxes........................................... 1,545 1,119 1,531 Non-cash financing and investing activities: Note received related to sale of headquarters building............................................. -- -- 9,000 Note received related to sale of subsidiary............ 1,250 -- -- ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 29 THE WACKENHUT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31, 1995 (TABULAR INFORMATION: IN THOUSANDS EXCEPT PER SHARE DATA) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal year The corporation's fiscal year ends on the Sunday closest to the calendar year end. Fiscal years 1993, 1994 and 1995 each included 52 weeks. Basis of financial statement presentation The consolidated financial statements include the accounts of the corporation and its subsidiaries, including its casualty reinsurance subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform with current year presentation. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Minority interest The minority interest expense represents principally the separate public ownership in Wackenhut Corrections Corporation (WCC) and the ownership by foreign investors in several subsidiaries of Wackenhut International, Incorporated. Income taxes The corporation accounts for its income taxes using Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Earnings per share Earnings per share are computed using the average number of common shares outstanding, including common stock equivalents and reflects the declaration of the 25% stock dividends effected in the form of stock splits in 1994 and 1995. Prior years' earnings per share have been restated to give effect to the stock splits. The average number of shares and common stock equivalents outstanding was 12,058,340, 12,066,780, and 12,131,772 in 1993, 1994 and 1995, respectively. Cash and cash equivalents The corporation considers highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The effect on cash flows of exchange rate changes in foreign currency has not been significant for any of the fiscal years presented. 30 THE WACKENHUT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Inventories Alarm systems and electronics inventories are carried at the lower of cost or market, on a first-in first-out basis. Uniform inventories are carried at amortized cost. Revenues Revenue is recognized as services are provided. During fiscal years 1993, 1994 and 1995, the largest client of the corporation was the U.S. Department of Energy, accounting for approximately 24%, 20% and 17% respectively, of the corporation's consolidated revenues. Fair value of financial instruments The carrying amount of cash and cash equivalents, accounts receivable, other receivables, notes receivable, notes payable and accounts payable approximates fair value. Marketable securities are classified as available-for-sale in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Marketable securities are recorded at fair value and unrealized holding gains and losses are excluded from earnings and reported as a net amount in a separate component of shareholders' equity. Realized gains and losses from the sale of securities are based on specific identification of the security. The fair value of marketable securities and certificates of deposit is presented under "wholly-owned casualty reinsurance subsidiary" in Note 4 of these financial statements. The carrying value of long-term debt (including current portion) approximates fair value. Interest rate swaps The corporation has entered into two interest rate swap agreements in order to manage interest rate costs. Under the terms of the interest rate swaps, the corporation agrees with counterparties to exchange at specific intervals, the difference between fixed rate (5.2% and 6.87%) and floating rate (5.66% for both swaps) interest amounts calculated in reference to an agreed-upon notional principal amount. Interest to be paid or received is accrued over the life of the agreement as an adjustment to interest expense. Newly Issued Accounting Standards In October 1995, the Financial Accounting Standards Board issued SFAS No. 123 "Accounting for Stock-Based Compensation," which requires adoption in fiscal 1996. SFAS No. 123 requires that the corporation's financial statements include certain disclosures about stock-based employee compensation arrangements and permits the adoption of a change in accounting for such arrangements. Changes in accounting for stock-based compensation are optional and the corporation plans to adopt only the disclosure requirements in 1996. In March 1995, the Financial Accounting Standards Board issued SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires adoption in fiscal 1996. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 121 also requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. The impact of adopting this statement is not expected to have a material impact upon the corporation's results of operations or financial position. Foreign currency translation Foreign currency transactions and financial statements (except for countries with highly inflationary economies) are translated into U.S. dollars at current exchange rates, except for revenues, costs and expenses 31 THE WACKENHUT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) which are translated at average exchange rates during each reporting period. Adjustments resulting from translation of financial statements are reflected as a separate component of shareholders' equity. The financial statements of subsidiaries located in highly inflationary economies are remeasured as if the functional currency were the U.S. dollar. The remeasurement of their local currencies into U.S. dollars creates translation adjustments which are included in the statements of income. (2) ACCOUNTS RECEIVABLE SECURITIZATION In January 1995, the corporation entered into a three-year agreement with two financial institutions to sell, on an on-going basis, an undivided interest in a defined pool of eligible receivables up to a maximum of $40,000,000. In December 1995, the accounts receivable securitization facility was increased to $50,000,000. The costs associated with this program are based upon the purchasers' level of investment and cost of issuing commercial paper plus predetermined fees. Such costs are included in "Interest expense" in the consolidated statements of income. At December 31, 1995, $35,000,000 of accounts receivable had been sold under this agreement. The defined pool of accounts receivable sold at December 31, 1995 approximates fair value. The corporation retains substantially the same risk of credit loss as if the receivables had not been sold. (3) PROPERTY AND EQUIPMENT AND DEPRECIATION METHODS Property and equipment are stated at cost, less accumulated depreciation. The corporation uses principally the straight-line method of depreciation for property and equipment. The components of property and equipment and their estimated lives are as follows:
YEARS 1994 1995 ------------ ------- ------- Land................................................ -- $ 4,444 $ 1,451 Buildings and improvements.......................... 20 to 33 1/3 24,722 10,121 Furniture and fixtures.............................. 5 to 20 3,608 3,910 Equipment........................................... 5 to 20 9,026 9,448 Automobiles and trucks.............................. 3 4,128 4,202 ------- ------- $45,928 $29,132 ======= =======
In the fourth quarter of 1995, the corporation sold its headquarters building located in Coral Gables, Florida. In 1994, the building was written down by $8,700,000 to reflect the estimated realizable value based on a third party valuation. The corporation sold its headquarters building in exchange for a $9,000,000 note (bearing interest at 6.5% and maturing in December 1997) and $1,675,000 in cash (after payment of related expenses) which resulted in no additional gain or loss on the transaction. (4) WHOLLY-OWNED CASUALTY REINSURANCE SUBSIDIARY The corporation has a wholly-owned casualty insurance subsidiary which reinsures a portion of the corporation's workers' compensation and general and automobile liability insurance. Incurred losses are recorded as reported. Provision is made to cover losses incurred but not reported. Loss reserves are computed based on actuarial studies and, in the opinion of management, are adequate. Future adjustments of the amounts recorded as of December 31, 1995, resulting from a continuous review process as well as differences between estimates and ultimate payments, will be reflected in the corporation's consolidated statements of 32 THE WACKENHUT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) income as such adjustments become determinable. A summary of operations for the last three fiscal years is as follows:
1993 1994 1995 -------- -------- -------- Premiums recognized................................... $ 16,282 $ 17,900 $ 17,642 Loss expense.......................................... (20,863) (18,499) (18,239) -------- -------- -------- Underwriting loss..................................... (4,581) (599) (597) Investment income..................................... 2,033 1,486 2,245 -------- -------- -------- $ (2,548) $ 887 $ 1,648 ======== ======== ========
Premiums paid by the corporation to the reinsurance subsidiary of $16,282,000, $17,900,000 and $17,642,000, for the fiscal years ended 1993, 1994 and 1995, respectively, have been eliminated in consolidation. Marketable securities and certificates of deposit, carried at fair value, consisted of the following at January 1, 1995 and December 31, 1995:
1994 1995 FAIR 1994 FAIR 1995 VALUE COST VALUE COST ------- ------- ------ ------ Municipal Bonds..................................... $ 7,332 $ 7,899 $1,556 $1,559 Government Bonds.................................... 968 975 844 847 Preferred Stock..................................... 1,713 2,040 1,980 2,040 Other............................................... 1,482 1,482 1,394 1,394 ------- ------- ------ ------ $11,495 $12,396 $5,774 $5,840 ------- ------- ------ ------
The unrealized loss on marketable securities of $901,000 and $66,000 at January 1, 1995 and December 31, 1995, respectively, has been reflected in the accompanying consolidated balance sheets net of applicable income taxes. The corporation has placed in trust, in favor of certain insurance companies, $1,345,000 in time deposits and $9,300,000 in cash and cash equivalents, and has issued irrevocable standby letters of credit for $31,392,000. Municipal bonds mature in 2018, government bonds mature in periods after 10 years and certificates of deposit mature within one year. As of December 31, 1995, marketable securities and certain other investments of the corporation's reinsurance subsidiary have specific restrictions on future sales. (5) NOTES PAYABLE AND LONG-TERM DEBT At December 31, 1995 the corporation had an outstanding note payable of $1,115,000 which represented short-term borrowings of an international subsidiary incurred for working capital, bearing interest at 8.0%, with a maturity in 1996. Long-term debt consists of the following:
1994 1995 ------- ------ Revolving loan -- 7.0% in 1994 and 6.2% in 1995 .................... $20,450 $1,400 First mortgage note on headquarters building -- 7.1%................ 16,060 -- Other debt principally related to WCC and international subsidiaries...................................................... 2,481 3,987 ------- ------ 38,991 5,387 Less -- current portion of long-term debt........................... -- 11 ------- ------ $38,991 $5,376 ======= ======
33 THE WACKENHUT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In January 1994, the corporation used short-term borrowings to prepay the first $12,500,000 of its senior notes. In August 1994, the corporation prepaid the remaining $12,500,000 of senior notes to an insurance company with proceeds from WCC's initial public offering (IPO) (see Note 10). The prepayments resulted in extraordinary charges of $1,444,000 ($2,348,000 before tax) or $.12 per share in 1993 and $887,000 ($1,344,000 before tax) or $.08 per share in 1994. In January 1995, the corporation prepaid the outstanding balance on the first mortgage note with proceeds from the sales of accounts receivable under the securitization facility. The corporation also used proceeds from the accounts receivable securitization to reduce the outstanding balance of the revolving loan. At year end, the corporation had in place a revolving credit agreement with one bank under which the corporation may borrow up to $50,000,000. The unused portion of the revolving line of credit was $12,640,000 at December 31, 1995 after deducting $35,960,000 in outstanding letters of credit. The interest payable is, at the corporation's option, a function of the applicable LIBOR or certificate of deposit rates. The agreement requires, among other things, that the corporation maintain a minimum consolidated net worth, as defined, and limits certain payments and distributions. In December 1994, WCC entered into a revolving credit agreement with a bank under which the subsidiary may borrow up to $15,000,000 until September 30, 2002. The corporation is not a guarantor of the revolving credit agreement which requires, among other things, that WCC maintain a minimum tangible net worth, as defined, and limits certain payments and distributions. Aggregate annual maturities of long-term debt are as follows:
YEAR ANNUAL MATURITY ---------------------------------------------------------------------- --------------- 1996.................................................................. $ 11 1997.................................................................. 763 1998.................................................................. 4,399 1999.................................................................. 13 2000.................................................................. 15 Thereafter............................................................ 186 ------- $ 5,387 ============
The corporation is a party to two offsetting interest rate swaps with Union Bank of Switzerland and Bank of America Illinois at year end. The notional principal amount under both agreements was $81,200,000 and the agreements expire in December 1998. Based on the interest rates in effect at December 31, 1995, the corporation was not exposed to a material loss in the event that either party failed completely to perform according to the terms of the contract. (6) PREFERRED AND COMMON STOCK The board of directors has authorized 10,000,000 shares of preferred stock. In October 1994 and in 1995, the board of directors declared 25% stock dividends, effected in the form of stock splits. The 1995 stock dividend was payable on January 9, 1996 to stockholders of record at the close of business on December 22, 1995. Prior periods' per share data have been restated. The stock dividends were paid in series B common stock to holders of the corporation's series A and B shares. Series B common stock has all the rights and privileges of the series A common stock with the exception of voting privileges. (7) STOCK INCENTIVE AND STOCK OPTION PLANS Key employees of the corporation and its subsidiaries are eligible to participate in the Key Employee Long-Term Incentive Stock Plan (incentive stock plan). Under the incentive stock plan, options for the corporation's common stock are granted to participants as approved by the Nominating and Compensation 34 THE WACKENHUT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Committee of the corporation's board of directors (committee). Under terms of the incentive stock plan, options are granted at prices not less than the fair market value at date of grant (or as otherwise determined by the committee), become exercisable after a minimum of six months, and expire no later than ten years after the date of grant. The committee may grant incentive stock options or non-qualified stock options. Options are subject to adjustment upon the occurrence of certain events, including stock splits and stock dividends. At December 31, 1995, 1,707,185 shares of series B common stock were reserved for issuance, including 1,149,997 shares available for future grants or awards. Changes in outstanding non-qualified stock options for series B common stock, as adjusted for 25% stock dividends in 1994 and 1995, are as follows:
STOCK OPTION PRICE OPTIONS PER SHARE ------- -------------- Granted in 1994............................................ 390,938 $6.16 Granted in 1995............................................ 218,750 $10.80 Exercised in 1995.......................................... (52,500) $6.16 ------- Outstanding at December 31, 1995........................... 557,188 $6.16 - $10.80 =======
At December 31, 1995, 338,438 options with an exercise price of $6.16 were exercisable. The remaining 218,750 options with an exercise price of $10.80 become exercisable in January 1996. At December 31, 1995, options were outstanding with expiration dates ranging from April 2004 to January 2005. On January 30, 1996, the corporation granted 202,000 non-qualified stock options to purchase shares of the corporation's series B common stock at $14.00 per share. The options become exercisable in January 1997 and expire in January 2006. (8) RETIREMENT AND DEFERRED COMPENSATION PLANS The corporation has a noncontributory defined benefit pension plan covering certain of its executives. Retirement benefits are based on years of service, employees' average compensation for the last five years prior to retirement and social security benefits. The plan currently is not funded. The corporation purchases and is the beneficiary of life insurance policies for each participant enrolled in the plan. The assumptions for the discount rate and the average increase in compensation used in determining the pension expense and funded status information are 7.5% and 4.0%, respectively. Total pension expense for 1993, 1994 and 1995 was $236,000, $267,000 and $329,000, respectively. The present value of accumulated pension benefits at year end 1993, 1994 and 1995 was $1,161,000, $1,400,000 and $1,895,000, respectively and is included in "Other liabilities" in the accompanying consolidated balance sheets. The corporation has established non-qualified deferred compensation agreements with certain senior executives providing for fixed annual benefits ranging from $100,000 to $175,000 payable upon retirement at approximately age 60 for a period of 20 years. In the event of death before retirement, annual benefits are paid for a period of 10 years. Benefits are funded by life insurance contracts purchased by the corporation. The cost of these agreements is being charged to expense and accrued using a present value method over the expected terms of employment. The charge to expense for fiscal 1993, 1994 and 1995 was $403,000, $444,000 and $468,000, respectively. The liability for deferred compensation was $2,629,000 and $3,274,000 at year-end 1994 and 1995, respectively and is included in "Other liabilities" in the accompanying consolidated balance sheets. 35 THE WACKENHUT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (9) INCOME TAXES The provision (credit) for income taxes consists of the following:
FISCAL YEAR ENDED ------------------------ 1993 1994 1995 ----- ------- ------ Federal income taxes: Current.................................................... $ 669 $ 3,014 $ 581 Deferred................................................... (385) (3,112) 3,578 ----- ------- ------ 284 (98) 4,159 State income taxes: Current.................................................... 252 527 104 Deferred................................................... (51) (412) 479 ----- ------- ------ 201 115 583 ----- ------- ------ Total.............................................. $ 485 $ 17 $4,742 ===== ======= ======
Deferred income taxes resulted from timing differences in the recognition of revenues and expenses for tax and financial reporting purposes. The tax effects of the principal timing differences are as follows:
FISCAL YEAR ENDED ------------------------- 1993 1994 1995 ----- ------- ------- Senior note prepayment premium.............................. $(904) $ 904 $ -- Income of foreign subsidiaries and affiliates............... 972 1,186 1,336 Reserve for losses of reinsurance subsidiary................ (462) (8) (1,222) Reserve for claims of employee health trust................. (148) (1,191) (412) Building write-down......................................... -- (3,350) 2,976 Deferred compensation....................................... (268) (398) (491) Depreciation................................................ 106 (486) (824) Amortization of deferred charges............................ 173 205 2,601 Other, net.................................................. 95 (386) 93 ----- ------- ------- $(436) $(3,524) $ 4,057 ===== ======= =======
The reconciliation of income tax computed at the federal statutory tax rate (34%) to income tax expense is as follows:
FISCAL YEAR ENDED ------------------------ 1993 1994 1995 ------ ------ ------ Provision using statutory federal tax rate................... $1,146 $1,021 $4,670 Capital loss carryforward utilization........................ (228) (814) (330) Targeted jobs tax credits.................................... (109) (235) (117) Tax exempt interest.......................................... (321) (295) (167) Other, net................................................... (204) 225 103 ------ ------ ------ 284 (98) 4,159 State income taxes........................................... 201 115 583 ------ ------ ------ $ 485 $ 17 $4,742 ====== ====== ======
The tax effect of the extraordinary charge for the early extinguishment of debt during fiscal 1993 and 1994 amounted to $904,000 and $457,000, respectively (see Note 5). 36 THE WACKENHUT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the net non-current deferred tax asset at January 1, 1995 and December 31, 1995 are shown below:
FISCAL YEAR ENDED ----------------- 1994 1995 ------- ------- Reserve for losses of reinsurance subsidiary....................... $ 5,270 $ 6,492 Income of foreign subsidiaries and affiliates...................... (5,614) (6,950) Reserve for claims of employee health trust........................ 4,692 5,104 Reserve for legal and other expenses............................... 899 430 Capital loss carryforward.......................................... 150 162 Deferred compensation.............................................. 2,660 3,133 Depreciation....................................................... (363) 439 Building write-down................................................ 3,350 373 Deferred charges................................................... -- (3,238) Other, net......................................................... 127 387 ------- ------- 11,171 6,332 Valuation allowance...................................... (150) (162) ------- ------- Deferred tax asset, net.................................. $11,021 $ 6,170 ======= =======
The components of the net current deferred tax liability at January 1, 1995 and December 31, 1995 are shown below:
FISCAL YEAR ENDED ----------------- 1994 1995 ------- ------- Amortization of uniforms and accessories........................... $ 1,818 $ 1,774 Accrued vacation pay............................................... (1,033) (1,242) Other, net......................................................... (189) (415) ------- ------- Deferred tax liability, net.............................. $ 596 $ 117 ======= =======
At December 31, 1995, the corporation had available a capital loss carryforward of $421,000 of which $391,000 expires in 1998 and $30,000 expires in 2000. The deferred tax asset arising from the capital loss carryforward has been fully reserved due to the uncertainty of the corporation's ability to generate future capital gains. (10) WACKENHUT CORRECTIONS CORPORATION PUBLIC OFFERINGS WCC, formerly a wholly-owned subsidiary of the corporation, sold 2,185,000 shares of common stock at an offering price of $9.00 per share in connection with its initial public offering in 1994. Net proceeds of approximately $17,626,000 from the IPO were used to repay bank debt and indebtedness to the corporation. Following the offering, WCC had 8,185,000 shares outstanding of which the corporation owned approximately 73%. During 1995, the exercise of 354,697 non-qualified stock options of WCC reduced the corporation's ownership in WCC to approximately 70% at December 31, 1995. In January 1996, WCC sold 2,300,000 shares of common stock at a price of $24.00 per share. Net proceeds of approximately $51,764,000 from the offering will be used for possible future acquisitions, capital investments in new facilities, working capital requirements and general corporate purposes. After the offering, the corporation's ownership in WCC was reduced to approximately 55%. 37 THE WACKENHUT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The board of directors of WCC has granted non-qualified stock options to purchase common stock which, if fully exercised, would reduce the corporation's ownership in WCC to approximately 52%. (11) WACKENHUT MONITORING SYSTEMS BUSINESS In 1993, the corporation sold its Wackenhut Monitoring Systems subsidiary in exchange for a $1,250,000 note and $100,000 cash which resulted in a loss of approximately $95,000. In connection with this transaction, the corporation has guaranteed indebtedness related to certain operating leases which totaled approximately $2,402,000 at December 31, 1995 and expire from 1996 to 1997. (12) NON-RECURRING CHARGES In the fourth quarter of 1993, the corporation recognized non-recurring charges of $1,726,000. A significant portion of these charges was due to a $791,000 decrease in the value of guard contracts acquired in 1991. The remaining components of the non-recurring charges consist principally of write-downs of various long-term assets, none of which are individually significant to the consolidated financial statements. (13) COMMITMENTS AND CONTINGENCIES The nature of the corporation's business results in claims for damages arising from the conduct of its employees or others. In the opinion of management, there are no pending legal proceedings that would have a material effect on the consolidated financial statements of the corporation. The corporation leases office space, data processing equipment and automobiles under non-cancelable operating leases expiring between 1996 and 2011. The corporation has entered into a lease for new corporate headquarters in Palm Beach Gardens, Florida, commencing in early 1996. The lease requires annual payments of $1,764,750 for an initial term of 15 years with 3 five-year options to extend the term of the lease. Rent expense for the fiscal years ended January 2, 1994, January 1, 1995 and December 31, 1995 was $6,312,000, $4,993,000, and $6,994,000, respectively. The minimum commitments under these leases and the 15 year lease for the new corporate headquarters are as follows:
MINIMUM YEAR COMMITMENT ------------------------------------------------------------------------- ---------- 1996..................................................................... $ 6,870 1997..................................................................... 5,224 1998..................................................................... 3,737 1999..................................................................... 2,969 2000..................................................................... 2,084 Thereafter............................................................... 18,437 ---------- $ 39,321 =========
38 THE WACKENHUT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (14) BUSINESS SEGMENTS Security-Related and Other Support Services and Correctional Services The corporation's principal business consists of security related and other support services to commercial and governmental clients. A subsidiary of the corporation, Wackenhut Corrections Corporation, provides facility management and construction services to detention and correctional facilities. Provided below is various financial information for each segment:
FISCAL YEAR ENDED ------------------------------ 1993 1994 1995 -------- -------- -------- Revenues: Security-related and other support services......... $600,472 $642,727 $697,301 Correctional services............................... 58,784 84,026 99,431 -------- -------- -------- Total revenues.............................. 659,256 726,753 796,732 -------- -------- -------- Operating Income: Security-related and other support services......... 3,050 10,846 8,545 Correctional services............................... 1,446 4,446 7,229 Write-down of headquarters building................. -- (8,700) -- -------- -------- -------- Total operating income...................... 4,496 6,592 15,774 -------- -------- -------- Equity income (loss) of foreign affiliates, net of taxes: Security-related and other support services......... 824 617 744 Correctional services............................... 261 (331) (113) -------- -------- -------- Total equity income......................... 1,085 286 631 -------- -------- -------- Capital expenditures: Security-related and other support services......... 3,083 4,829 4,137 Correctional services............................... 326 262 2,720 -------- -------- -------- Total capital expenditures.................. 3,409 5,091 6,857 -------- -------- -------- Depreciation and amortization expense: Security-related and other support services......... 9,040 9,631 9,868 Correctional services............................... 2,101 2,287 2,303 -------- -------- -------- Total expenses.............................. 11,141 11,918 12,171 -------- -------- -------- Identifiable assets: Security-related and other support services......... 192,149 182,424 159,087 Correctional services............................... 19,148 30,333 38,840 -------- -------- -------- Total identifiable assets................... $211,297 $212,757 $197,927 ======== ======== ========
39 THE WACKENHUT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Domestic and International Operations Non-U.S. operations of the corporation and its subsidiaries are conducted primarily in South America and Australia. The corporation carries its investment in affiliates (20% to 50% owned) under the equity method. U.S. income taxes which would be payable upon remittance of affiliates' earnings to the corporation are provided currently. Minority interest in consolidated foreign subsidiaries have been reflected net of applicable income taxes in the accompanying financial statements. A summary of domestic and international operations is shown below:
FISCAL YEAR ENDED ------------------------------ 1993 1994 1995 -------- -------- -------- Revenues: Domestic operations................................. $575,733 $615,727 $652,723 International operations............................ 83,523 111,026 144,009 -------- -------- -------- Total revenues.............................. $659,256 $726,753 $796,732 -------- -------- -------- Operating Income: Domestic operations................................. $ 2,904 $ 10,630 $ 11,407 International operations............................ 1,592 4,662 4,367 Write-down of headquarters building................. -- (8,700) -- -------- -------- -------- Total operating income...................... $ 4,496 $ 6,592 $ 15,774 -------- -------- -------- Equity income of foreign affiliates, net of taxes: Domestic operations................................. $ -- $ -- $ -- International operations............................ 1,085 286 631 -------- -------- -------- Total equity income......................... $ 1,085 $ 286 $ 631 -------- -------- -------- Capital expenditures: Domestic operations................................. $ 1,932 $ 1,498 $ 2,911 International operations............................ 1,477 3,593 3,946 -------- -------- -------- Total capital expenditures.................. $ 3,409 $ 5,091 $ 6,857 -------- -------- -------- Depreciation and amortization expense: Domestic operations................................. $ 9,240 $ 9,751 $ 9,512 International operations............................ 1,901 2,167 2,659 -------- -------- -------- Total expenses.............................. $ 11,141 $ 11,918 $ 12,171 -------- -------- -------- Identifiable assets: Domestic operations................................. $179,565 $163,864 $141,431 International operations............................ 31,732 48,893 56,496 -------- -------- -------- Total identifiable assets................... $211,297 $212,757 $197,927 -------- -------- --------
40 THE WACKENHUT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for the corporation and its subsidiaries for the fiscal years ended January 1, 1995 and December 31, 1995 is as follows:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- 1994 Revenues...................................... $171,522 $175,016 $191,205 $189,010 Income (loss) from operations(1).............. 3,203 4,042 3,863 (4,516) Income (loss) before extraordinary charge..... 1,820 1,953 1,982 (3,483) Extraordinary charge -- early extinguishment of debt, net of income taxes(1)............. -- -- (887) -- -------- -------- -------- -------- Net income (loss)............................. $ 1,820 $ 1,953 $ 1,095 $ (3,483) -------- -------- -------- -------- Earnings (loss) per share:(2) Income (loss) before extraordinary charge... $ 0.15 $ 0.16 $ 0.17 $ (0.29) Extraordinary charge........................ -- -- (0.08) -- -------- -------- -------- -------- Net income (loss)................... $ 0.15 $ 0.16 $ 0.09 $ (0.29) ======== ======== ======== ======== 1995 Revenues...................................... $189,792 $193,371 $203,637 $209,932 Income from operations........................ 3,055 3,967 4,394 4,358 Net income.................................... 1,599 1,726 1,956 1,979 Earnings per share(2)......................... $ 0.13 $ 0.15 $ 0.16 $ 0.16 ======== ======== ======== ========
- --------------- (1) In the fourth quarter of 1994, the carrying value of the headquarters building was written down to its estimated realizable value and a charge of $8,700,000 was recognized (see Note 3). Additionally, an extraordinary charge of $887,000 (after tax) or $.08 per share, was recognized in the third quarter of 1994 for the early retirement of senior debt (see Note 5). (2) Earnings per share have been restated to include the 25% stock dividend effected in the form of a stock split, declared on October 29, 1994 and paid on January 9, 1995 and the 25% stock dividend effected in the form of a stock split, declared on October 31, 1995 and paid on January 9, 1996 (see Notes 1 and 6). 41 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III The information required by Items 10, 11, 12 and 13 of Form 10-K (except such information as is furnished in a separate caption "Executive Officers of the Registrant" and is included in Part I, hereto) is contained in, and is incorporated by reference from, the proxy statement (with the exception of the Board Compensation Committee Report and the Performance Graph) for the Company's 1996 Annual Meeting of Shareholders, which has been filed with the Securities and Exchange Commission pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following consolidated financial statements of the Company are included in Item 8: Consolidated Balance Sheets - January 1, 1995 and December 31, 1995 Consolidated Statements of Income - Fiscal years ended January 2, 1994, January 1, 1995 and December 31, 1995 Consolidated Statements of Cash Flows - Fiscal years ended January 2, 1994, January 1, 1995 and December 31, 1995 Consolidated Statements of Shareholders' Equity - Fiscal years ended January 2, 1994, January 1, 1995 and December 31, 1995 Notes to Consolidated Financial Statements 2. Financial Statement Schedule SCHEDULE II THE WACKENHUT CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE FISCAL YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31, 1995 (In thousands)
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS, BALANCE AT BEGINNING COSTS AND TO OTHER ACTUAL END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS CHARGE-OFFS PERIOD - ---------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED JANUARY 2, 1994: Allowance for doubtful accounts $1,580 $735 - ($1,628) $ 687 ================================================================================== Valuation allowance - deferred tax asset $2,932 - - ($ 300) $2,632 ================================================================================== YEAR ENDED JANUARY 1, 1995: Allowance for doubtful accounts $ 687 $508 - ($ 139) $1,056 ================================================================================== Valuation allowance - deferred tax asset $2,632 - - ($2,482) $ 150 ================================================================================== YEAR ENDED DECEMBER 31, 1995: Allowance for doubtful accounts $1,056 $863 ($162) ($ 489) $1,268 ================================================================================== Valuation allowance - deferred tax asset $ 150 $ 12 - - $ 162 ==================================================================================
All other schedules specified in the accounting regulations of the Securities and Exchange Commission have been omitted because they are either inapplicable or not required. Individual financial statements of the Company have been omitted because it is primarily an operating company and all significant subsidiaries included in the consolidated financial statements filed with this Annual Report are majority-owned. 3. Exhibits The following exhibits are filed as part of this Annual Report: 42
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------ -------------------------------------------------------------------------- ------------ 3.1 -- Articles of Incorporation as amended 3.2 -- Bylaws currently in effect 4.1 -- Revolving Credit and Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut Corporation, NationsBank of Florida, N.A. and Bank of America Illinois, as Lenders, and NationsBank of Florida, N.A., as Agent (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 1, 1995) 4.2 -- Letter dated June 8, 1995 concerning the Revolving Credit and Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut Corporation, NationsBank of Florida, N.A., and Bank of America Illinois, as Lenders, and NationsBank of Florida, N.A., as Agent 4.3 -- Letter dated August 24, 1995 concerning the Revolving Credit and Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut Corporation, NationsBank of Florida, N.A., as Agent 4.4 -- Receivables Purchase Agreement dated as of January 5, 1995 among The Wackenhut Corporation, as Seller, Receivables Capital Corporation and Enterprise Funding Corporation, each as a Purchaser, Bank of America National Trust and Savings Association and NationsBank of North Carolina, N.A., each as a Managing Agent, and Bank of America National Trust and Savings Association, as the Administrative Agent (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 1, 1995) 4.5 -- First Amendment dated December 15, 1995 to the Receivables Purchase Agreement dated as of January 5, 1995 among The Wackenhut Corporation, as Seller, Receivables Capital Corporation and Enterprise Funding Corporation, each as a Purchaser, Bank of America National Trust and Savings Association and NationsBank of North Carolina, N.A., each as a Managing Agent, and Bank of America National Trust and Savings Association, as the Administrative Agent 4.6 -- $15,000,000 Credit Agreement dated as of December 12, 1994 between Wackenhut Corrections Corporation, as Borrower, and Barnett Bank of South Florida, N.A., as Lender (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 1, 1995) 4.7 -- Amended and Restated Revolving Credit and Reimbursement Agreement dated July 1, 1993 between The Wackenhut Corporation and NationsBank of Florida, National Association (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 2, 1994) 4.8 -- Amendment dated May 18, 1994 to the Amended and Restated Revolving Credit and Reimbursement Agreement dated July 1, 1993 between The Wackenhut Corporation and NationsBank of Florida, N.A. 4.9 -- Amendment dated March 7, 1995 to the Amended and Restated Revolving Credit and Reimbursement Agreement dated July 1, 1993 between The Wackenhut Corporation and NationsBank of Florida, N.A. (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 1, 1995) 10.1 -- Form of Deferred Compensation Agreement for Executive Officers (the "Senior Plan"): Alan B. Bernstein, Richard R. Wackenhut, Fernando Carrizosa, Timothy P. Cole and Robert C. Kneip (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 2, 1994) 10.2 -- Amendments to the Deferred Compensation Agreements for Executive Officers (the "Senior Plan"): Alan B. Bernstein, Richard R. Wackenhut, Fernando Carrizosa, Timothy P. Cole and Robert C. Kneip (incorporated by reference to the Registrant's Form 10-K Annual and Report for the fiscal year ended December 29, 1991)
43
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------ -------------------------------------------------------------------------- ------------ 10.3 -- Executive Officer Retirement Plan 10.4 -- Amended and Restated Split Dollar arrangement with George R. and Ruth J. Wackenhut 10.5 -- Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 10.6 -- First Amendment dated November 3, 1995 to Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 10.7 -- $9,000,000 Promissory Note dated December 21, 1995 between The Wackenhut Corporation and ACP-Atrium CG, L.P., a Florida limited partnership 10.8 -- Purchase Money Real Estate Mortgage, Assignment and Security Agreement dated December 31, 1995 between The Wackenhut Corporation and ACP-Atrium CG, L.P., a Florida limited partnership 10.9 -- Key Employee Long-Term Incentive Stock Plan dated July 1991 21.1 -- Subsidiaries of The Wackenhut Corporation 23.1 -- Consent of Arthur Andersen LLP 24.1 -- Powers of Attorney 27.1 -- Financial Data Schedule (for SEC use only)
44 (b). Reports on Form 8-K. On January 30, 1995, the Company filed a current report on Form 8-K to report that it would take a special, one-time charge in the fourth quarter of fiscal 1994 to provide for a loss resulting from the write-down in the carrying value of its headquarters building in Coral Gables, Florida. The loss resulting from the write-down of the headquarters building carrying value of $8.7 million is due to management's decision to sell the Company's headquarters building. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE WACKENHUT CORPORATION Date: March 29, 1996 By: /s/ Juan D. Miyar* --------------------------------------- Juan D. Miyar, Vice President - Accounting Services and Corporate Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: March 29, 1996 /s/ George R. Wackenhut* -------------------------------------- - - 45 George R. Wackenhut, Chairman of the Board and Chief Executive Officer (principal executive officer) Date: March 29, 1996 /s/ Daniel E. Mason* ---------------------------------- Daniel E. Mason, Vice President and Chief Financial Officer, Domestic Operations (principal financial officer) Date: March 29, 1996 /s/ Juan D. Miyar* ----------------------------------- Juan D. Miyar, Vice President - Accounting Services and Corporate Controller (principal accounting officer) Date: March 29, 1996 /s/ Julius W. Becton, Jr.* ----------------------------------- JULIUS W. BECTON, JR. Director ----------------------------------- RICHARD G. CAPEN, JR. Director ----------------------------------- ANNE N. FOREMAN Director ----------------------------------- EDWARD L. HENNESSY, JR. Director Date: March 29, 1996 /s/ Paul X. Kelley * ----------------------------------- PAUL X. KELLEY Director ----------------------------------- NANCY CLARK REYNOLDS Director Date: March 29, 1996 /s/ Thomas P. Stafford * ----------------------------------- THOMAS P. STAFFORD Director Date: March 29, 1996 /s/ George R. Wackenhut * ----------------------------------- GEORGE R. WACKENHUT Director Date: March 29, 1996 /s/ Richard R. Wackenhut * ----------------------------------- RICHARD R. WACKENHUT Director Date: March 29, 1996 *By /s/ Daniel E. Mason ----------------------------------- DANIEL E. MASON, Attorney-in-fact 46 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------ -------------------------------------------------------------------------- ------------ 3.1 -- Articles of Incorporation as amended 3.2 -- Bylaws currently in effect 4.1 -- Revolving Credit and Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut Corporation, NationsBank of Florida, N.A. and Bank of America Illinois, as Lenders, and NationsBank of Florida, N.A., as Agent (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 1, 1995) 4.2 -- Letter dated June 8, 1995 concerning the Revolving Credit and Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut Corporation, NationsBank of Florida, N.A., and Bank of America Illinois, as Lenders, and NationsBank of Florida, N.A., as Agent 4.3 -- Letter dated August 24, 1995 concerning the Revolving Credit and Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut Corporation, NationsBank of Florida, N.A., as Agent 4.4 -- Receivables Purchase Agreement dated as of January 5, 1995 among The Wackenhut Corporation, as Seller, Receivables Capital Corporation and Enterprise Funding Corporation, each as a Purchaser, Bank of America National Trust and Savings Association and NationsBank of North Carolina, N.A., each as a Managing Agent, and Bank of America National Trust and Savings Association, as the Administrative Agent (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 1, 1995) 4.5 -- First Amendment dated December 15, 1995 to the Receivables Purchase Agreement dated as of January 5, 1995 among The Wackenhut Corporation, as Seller, Receivables Capital Corporation and Enterprise Funding Corporation, each as a Purchaser, Bank of America National Trust and Savings Association and NationsBank of North Carolina, N.A., each as a Managing Agent, and Bank of America National Trust and Savings Association, as the Administrative Agent 4.6 -- $15,000,000 Credit Agreement dated as of December 12, 1994 between Wackenhut Corrections Corporation, as Borrower, and Barnett Bank of South Florida, N.A., as Lender (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 1, 1995) 4.7 -- Amended and Restated Revolving Credit and Reimbursement Agreement dated July 1, 1993 between The Wackenhut Corporation and NationsBank of Florida, National Association (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 2, 1994) 4.8 -- Amendment dated May 18, 1994 to the Amended and Restated Revolving Credit and Reimbursement Agreement dated July 1, 1993 between The Wackenhut Corporation and NationsBank of Florida, N.A. 4.9 -- Amendment dated March 7, 1995 to the Amended and Restated Revolving Credit and Reimbursement Agreement dated July 1, 1993 between The Wackenhut Corporation and NationsBank of Florida, N.A. (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 1, 1995) 10.1 -- Form of Deferred Compensation Agreement for Executive Officers (the "Senior Plan"): Alan B. Bernstein, Richard R. Wackenhut, Fernando Carrizosa, Timothy P. Cole and Robert C. Kneip (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 2, 1994) 10.2 -- Amendments to the Deferred Compensation Agreements for Executive Officers (the "Senior Plan"): Alan B. Bernstein, Richard R. Wackenhut, Fernando Carrizosa, Timothy P. Cole and Robert C. Kneip (incorporated by reference to the Registrant's Form 10-K Annual and Report for the fiscal year ended December 29, 1991)
47
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------ -------------------------------------------------------------------------- ------------ 10.3 -- Executive Officer Retirement Plan 10.4 -- Amended and Restated Split Dollar arrangement with George R. and Ruth J. Wackenhut 10.5 -- Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 10.6 -- First Amendment dated November 3, 1995 to Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 10.7 -- $9,000,000 Promissory Note dated December 21, 1995 between The Wackenhut Corporation and ACP-Atrium CG, L.P., a Florida limited partnership 10.8 -- Purchase Money Real Estate Mortgage, Assignment and Security Agreement dated December 31, 1995 between The Wackenhut Corporation and ACP-Atrium CG, L.P., a Florida limited partnership 10.9 -- Key Employee Long-Term Incentive Stock Plan dated July 1991 21.1 -- Subsidiaries of The Wackenhut Corporation 23.1 -- Consent of Arthur Andersen LLP 24.1 -- Powers of Attorney 27.1 -- Financial Data Schedule (for SEC use only)
EX-3.1 2 AMENDED & RESTATED ARTICLES OF INCORPORATION 1 EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE WACKENHUT CORPORATION ------------------------ The articles of incorporation of The Wackenhut Corporation, originally filed with the Secretary of State of Florida on December 4, 1958, under the corporate name of Security Services Corp., are hereby restated as follows: ARTICLE I The name of this Corporation shall be: THE WACKENHUT CORPORATION ARTICLE II The purpose for which the corporation is formed and the principal objects of business to be carried on by it are as follows: (a) To contract for and provide any of the functions of Services of a private investigative agency, uniformed or ununiformed personnel, management consultation, advice, plans, surveys and systems for the safety, security control, protection and efficiency of persons, business, industrial and governmental firms and agencies. (b) To engage in and carry on the business of manufacturing and producing, buying, selling or otherwise dealing in or with goods, wares and merchandise of every kind and description and to acquire, own, use, sell and convey, mortgage or otherwise encumber any real estate or personal property in whole or in part and in any manner whatever to acquire, own, dispose of franchises, licenses, options or rights in any real estate or personal property or other property interests. (c) To engage in and carry on a general brokerage commission, forwarding and exporting and importing business and to act as factors, agents, commission merchants and dealers in the buying, selling or dealing in of goods, wares and merchandise of all kinds and descriptions. (d) To conduct and engage in any business, occupation or enterprise and to exercise any power or authority which may be done by a private corporation organized and existing under and by virtue of Chapter 608, Florida Statute, it being the intention that this corporation may conduct and transact any business lawfully authorized and not prohibited by said Chapter 608, Florida Statutes. ARTICLE III The maximum amount of shares of stock that this corporation shall be authorized to issue shall be 30,000,000 shares which are to be divided into two classes as follows: 20,000,000 shares of Common Stock, par value $.10 per share, and 10,000,000 shares of Preferred Stock. The Common Stock may be created and issued from time to time in one or more series with voting rights for each series as determined by the Board of Directors of the Corporation and set forth in the resolution or resolutions providing for the creation and issuance of the stock in such series. The Preferred Stock may be created and issued from time to time in one or more series with such resignations, preferences, limitations, conversion rights, cumulative, relative, participating, optional or other rights, including voting rights, 2 qualifications, limitations or restrictions thereof and determined by the Board of Directors of the Corporation and set forth in the resolution or resolutions providing for the creation and issuance of the stock in such series. ARTICLE IV The principal place of business of this corporation shall be at 3280 Ponce de Leon Blvd., Coral Gables, Florida, or at such other place as may be designated by the Board of Directors from time to time. This corporation shall have full power and authority to transact business and to establish offices or agencies at such places as may be in the best interests of this corporation. ARTICLE V This corporation is to exist perpetually. ARTICLE VI The amount of capital with which this corporation will begin business is Five Hundred Dollars. ARTICLE VII The business of this corporation shall be conducted by a Board of Directors consisting of not less than three (3) nor more than nineteen (19) members, the exact number to be determined from time to time in the by-laws of this Corporation. The Board of Directors shall have sole authority to adopt or amend by-laws for the government of this corporation. ARTICLE VIII The names and post office addresses of the members of the first Board of Directors, the President, and the Secretary and the Treasurer are: G. DAVID PARRISH................................. 220 Security Trust President and Director Bldg., Miami, Florida JOHN T. WOITESEK................................. 220 Security Trust Secretary and Director Bldg., Miami, Florida GENE ESSNER...................................... 220 Security Trust Treasurer and Director Bldg., Miami, Florida
ARTICLE IX The name and post office address of each subscriber of these Articles of Incorporation, the number of shares of stock each agrees to take and the value of the consideration therefor (the sum of which values is not less than the amount of capital specified in Article VI) are: G. DAVID PARRISH.................................. 220 Security Trust 167 shares $167.00 Bldg., Miami, Florida JOHN T. WOITESEK.................................. 220 Security Trust 167 shares $167.00 Bldg., Miami, Florida GENE ESSNER....................................... 220 Security Trust 167 shares $167.00 Bldg., Miami, Florida -------- $500.00 =======
2 3 ARTICLE X The corporation shall have the following powers: (a) To acquire all or any part of the good will, rights, property and business of any person, firm, association or corporation heretofore or hereafter engaged in any business similar to any business which the corporation has the power to conduct and to hold, utilize, enjoy and in any and all manner dispose of the whole or any part of the rights, property and business so acquired, and to assume in connection therewith any liabilities of any person, firm, association or corporation. (b) To apply for, obtain, purchase, or otherwise acquire, any patents, copyrights, licenses, trademarks, trade names, rights, processes, formulas and the like, which may seem capable of being used for any of the purposes of the corporation; and to use, exercise, develop, grant licenses in respect of, sell and otherwise turn to account the same. (c) To carry out all or any part of the aforesaid objects and purposes, and to conduct its business in all or any part of its branches, in any or all states, territories, districts and possessions of the United States of America and in foreign countries. (d) The corporation shall be authorized to exercise and enjoy all of the powers, rights and privileges granted to or conferred upon corporations organized under the laws of the State of Florida now or hereafter in force, and the enumeration of any powers shall not be deemed to exclude any powers, rights or privileges so granted or conferred. ARTICLE XI The Board of Directors, by the affirmative vote of a majority of the Directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all Directors for services to the corporation as directors, officers or otherwise. The authority vested in the Board of Directors by this Article XI shall include, in addition to the authority to establish salaries, the authority to establish the payment of bonuses, stock options and pension and profit-sharing plans. ARTICLE XII No holder of any of the shares of the capital stock of the corporation shall be entitled as of right to purchase or to subscribe for any unissued stock of any class, or any additional shares of any class, whether presently or hereinafter authorized, and also including without limitation, bonds, certificates of indebtedness, debentures, or other securities convertible into stock of the corporation or carrying any right to purchase stock of any class. Such unissued stock, or additional authorized issue of any stock, or other securities convertible into stock or carrying any right to purchase stock, may be issued and disposed of, pursuant to resolutions of the Board of Directors, to such persons, firms, corporations or associations and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its discretion. The Corporation shall indemnify every person who was or is a party or is or was threatened to be made a party to any action, suit or proceeding whether civil, criminal, administrative or investigative by reason of the fact he is or was a director, officer, employee, or agent, or is or was serving at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust employee benefit plan or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with such action, suit or proceeding, (except in such cases involving gross negligence or willful misconduct) in the performance of their duties, to the full extent permitted by applicable law. Such indemnification may, in the discretion of the Board of Directors, including advances of his expenses in advance of final disposition subject to the provisions of applicable law. Such right of indemnification shall not be exclusive of any right to which any director, officer, employee, agent or controlling stockholder of the Corporation may be entitled as a matter of law. 3 4 The foregoing restated articles of incorporation which integrate the original articles of incorporation of The Wackenhut Corporation and the amendments thereto, without further modification, were duly adopted at a Quarterly Meeting of the Board of Directors of the Corporation held on January 25, 1992 and duly adopted by the shareholders of the Corporation on April 24, 1992. IN WITNESS WHEREOF, the undersigned President and Chief Operating Officer and the Assistant Secretary of the Corporation have executed these Restated Articles of Incorporation this 5th day of May, 1992. /s/ RICHARD R. WACKENHUT -------------------------------------- Richard R. Wackenhut President and Chief Operation Officer /s/ JAMES P. ROWAN -------------------------------------- James P. Rowan Assistant Secretary 4 5 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF THE WACKENHUT CORPORATION, A FLORIDA CORPORATION Pursuant to provisions of Section 607.1006 of the Florida Business Corporation Act, The Wackenhut Corporation, a Florida corporation (the "Corporation"), hereby adopts the following Articles of Amendment: (a) The name of this corporation is The Wackenhut Corporation. (b) Article III of the Corporation's Articles of Incorporation is amended to read as follows: ARTICLE III The maximum number of shares of stock that the Corporation shall be authorized to issue shall be 30,000,000 shares which are to be divided into two classes as follows: 20,000,000 shares of Common Stock, par value $0.10 per share, of which 3,858,885 shares are designated to be issuable as Series A Common Stock and 16,141,115 shares are designated to be issuable as Series B Common Stock; and 10,000,000 shares of Preferred Stock. The Common Stock may be created and issued from time to time in one or more series with voting rights for each series as determined by the Board of Directors of the Corporation and set forth in the resolution or resolutions providing for the creation and issuance of the stock in such series. The Preferred Stock may be created and issued from time to time in one or more series with such designations, preferences, limitations, conversion rights, cumulative, relative, participating, optional or other rights, including voting rights, qualifications, limitations or restrictions thereof as determined by the Board of Directors of the Corporation and set forth in the resolution or resolutions providing for the creation and issuance of the stock in such series. The Corporation has authorized the issuance of a series of Common Stock consisting of 3,858,885 shares of voting Common Stock, par value $.10 per share which shall be designated as the Series A Common Stock. The Corporation has authorized the issuance of a series of Common Stock consisting of 16,141,115 shares of non-voting Common Stock, par value $.10 per share which shall be designated as the Series B Common Stock. The Series A Common Stock and the Series B Common Stock shall be identical in all respects except that the Series B Common Stock shall have no right to vote. (c) The foregoing amendment to the Articles of Incorporation of the Corporation was duly authorized by the Corporation's Board of Directors on October 31, 1995, without Shareholder action, pursuant to Section 607.0602 of the Florida Business Corporation Act. (d) In accordance with Section 607.0123 of the Florida Business Corporation Act, this amendment shall be effective on October 31, 1995. The undersigned director of the Corporation has executed these Articles of Amendment this 15th day of March, 1995. THE WACKENHUT CORPORATION, a Florida corporation By: /s/ G. R. WACKENHUT -------------------------------------- Name: G. R. WACKENHUT -------------------------------------- Title: Director 5 EX-3.2 3 BY LAWS 1 EXHIBIT 3.2 BY-LAWS OF THE WACKENHUT CORPORATION (INCORPORATED UNDER THE LAWS OF FLORIDA) ------------------------ ARTICLE I -- STOCK 1. Transfers of stock shall be made only upon the books of the Corporation, and only by the person named in the certificate or by an attorney, lawfully constituted, in writing, and only upon surrender of the certificate therefor. 2. Subject to the laws of the State of Florida, the Certificate of Incorporation, and the By-Laws, the Board of Directors may make such rules and regulations as they may deem expedient relative to the issue, transfer and registration of certificates of the capital stock of the Corporation, and may appoint a transfer agent or registrar of transfers, or both, and require all certificates of stock to bear the signature of such transfer agent or registrar, or the signature of both. 3. Registered stockholders only shall be entitled to be treated by the Corporation as the holders in fact of the stock standing in their respective names, and the Corporation shall not be bound to recognize any equitable or other claim to or interest in any share on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by the laws of Florida. 4. In case of loss or destruction of any certificate of stock, another may be issued in its place upon proof of such loss or destruction and upon the giving of a satisfactory bond of indemnity to the Corporation in such sum as the Directors may provide. ARTICLE II -- STOCKHOLDERS' MEETING 1. All meetings of the stockholders shall be held at such place, within or without the State of Florida, as shall be stated in the notice of the meeting. 2. The annual meeting of the stockholders of the Corporation for the election of Directors to succeed those whose terms expire, and for the transaction of such other business as may come before the meeting, shall be held at such hour and on such day as the Board of Directors may determine and cause to be stated in the notice of the meeting; provided, however, the date of such meeting shall be within 120 days following the close of the fiscal year of the Corporation. If the annual meeting of stockholders be not held as herein prescribed, the election of Directors may be held at any meeting thereafter called pursuant to these By-laws. Any stockholder, represented in person or by proxy, may call for an election by ballot; otherwise the election shall be held with or without ballot as the Chairman of the meeting prescribes. 3. Special meetings of the stockholders may be called by the Chairman of the Board, the President, or one of the Vice Presidents or by the Board of Directors, and shall be called at any time by the Chairman of the Board, the President, one of the Vice Presidents, Secretary or Treasurer upon the request, in writing, of stockholders owning twenty percent (20%) of the outstanding stock of the Corporation entitled to vote. Such request must state in specific terms the purpose of the meeting. 4. Notice of the time and place of the annual and of all special meetings of the stockholders shall be given at least ten (10) days prior to the meeting to each stockholder of record of the Corporation entitled to vote thereat. Business transacted at all special meetings of the stockholders shall be confined to the purposes stated in the notice thereof and matters incidental thereto. 2 5. A quorum at any annual or special meeting of the stockholders shall consist of stockholders holding a majority of the capital stock of this Corporation outstanding and entitled to vote thereat, represented either in person or by proxy, except as otherwise specially provided by law or in the Certificate of Incorporation. If a quorum be not present at a properly called stockholders' meeting, the meeting may be adjourned by a majority of those present and entitled to vote thereat. ARTICLE III -- BOARD OF DIRECTORS 1. The management of all the affairs, property and interests of the Corporation shall be vested in a Board of not less than three (3) and not more than nineteen (19) Directors, consisting of persons who shall be elected to and who shall, except as hereinafter provided, hold office until the next annual meeting or until their successors are elected and qualify. Directors need not be stockholders. In addition to the powers and authorities by the By-Laws and the Certificate of Incorporation expressly conferred upon it, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. 2. The exact number of Directors shall be determined from time to time by resolution adopted by the affirmative vote of a majority of all the Directors then holding office at any special or regular meeting, provided that in the case of a special meeting notice of such proposed action has been included in the notice thereof. Any such resolution, when so adopted, shall effect an amendment of this section and constitute a determination of the exact number of persons constituting the Board of Directors. Any such resolution increasing or decreasing the number of Directors shall have the effect of creating or eliminating a vacancy or vacancies, as the case may be; provided, however, that no such resolution shall reduce the number of Directors below the number then holding office. 3. In case any vacancy or vacancies shall occur in the Board of Directors by reason of death, resignation or expiration of term of office or by reason of an increase in the number of Directors as provided in Section 2 of this ARTICLE III, the remaining Directors, by the affirmative vote of a Majority thereof, may elect a Director to fill each such vacancy to hold office for the period specified in Section 1 of this ARTICLE III. 4. Any Directors may be removed at any time with or without cause, by a vote of stockholders holding a majority of the stock of the Corporation entitled to vote. Any Director may be removed at any time or cause by resolution adopted by the affirmative vote of a majority of all the Directors then holding office at any special or regular meeting provided notice of such proposed action has been included in the notice of such meeting. 5. Annual Meetings of the Directors shall be held with or without notice in the general location of and promptly following the Annual Meeting of the Shareholders. Regular meetings of the Directors may be held without notice at such times and at such places, within or without the State of Florida, as the Directors may from time to time determine. 6. Special meetings of the Directors may be called at any time by the Chairman of the Board, the President or one of the Vice Presidents or the Secretary, or upon written request of two or more Directors, such request stating the purpose for which the meeting is to be called, to be held at the principal office of the Corporation or at such place within or without the State of Florida as the Directors may from time to time decide. 7. Written notice of the date, time and place of special meetings of the Board shall be given to each Director either by personal delivery or by mail, telegram or cablegram at least two (2) days before the date designated therein for such meeting. 8. A majority of the whole Board of Directors shall be necessary at all meetings to constitute a quorum for the transaction of business; but less than a quorum may adjourn the meeting, which may be held on a subsequent date without further notice, provided a quorum be present at such deferred meeting. Unless otherwise specifically provided by the laws of the State of Florida or the Certificate of Incorporation, the act of 2 3 a majority of the Directors present at any properly convened meeting at which there is a quorum shall be the act of the Board. 9. No stated salary, subject to any limitations contained in the Certificate of Incorporation, shall be paid Directors, as such, for their services, but by resolution of the Board a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board, or of attendance at each regular or special meeting of a standing or special committee or of the Executive Committee; provided, however, that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. 10. The Board of Directors be and is hereby authorized to name retiring directors as Director-Emeritus having the right to attend meetings of the Board without vote. The expenses of such Director-Emeritus, including transportation, meals and lodging, may, in the discretion of the Board of Directors, be paid by the Corporation. 11. Upon attaining the age of seventy-three (73), a Director shall not be eligible for election as a member of the Board of Directors unless the Nominating and Compensation Committee of the Board of Directors unanimously grants a waiver of this requirement. ARTICLE IV -- EXECUTIVE COMMITTEE The Board of Directors may, by resolution, appoint an Executive Committee to consist of up to five Directors, which Executive Committee shall have and may exercise, during the intervals between meetings of the Board of Directors, all the powers vested in the Board of Directors under any statute, the Certificate of Incorporation or the By-Laws of the Corporation, except the power to (a) determine the number of Directors constituting the Board, (b) remove any Director for cause, (c) fill vacancies in the Board of Directors, (d) change the membership or fill vacancies in the Executive Committee, (e) approve amendments of the Certificate of Incorporation, or (f) amend or repeal the By-Laws of the Corporation. The Board of Directors shall have the exclusive power at any time and from time to time to change the membership of and fill vacancies in the Executive Committee. The Executive Committee may make rules for the conduct of its business. The Executive Committee shall keep and preserve minutes reflecting its actions. A majority of the members of the Executive Committee shall be a quorum. After at least three hours notice, with good faith effort to contact each member orally, by telephone or by telegram, all actions may be taken without additional notice of any kind by the unanimous agreement of a majority of the members of the Executive Committee. However, if one of the members of the Executive Committee dissents, action can only be taken upon the approval of a majority of the members of the Executive Committee after due notice as provided for in Article VII. ARTICLE V. OFFICERS 1. The officers of the Corporation shall be a President, a Vice President, a Secretary and a Treasurer, and, in the discretion of the Board of Directors, a Chairman of the Board, an additional Vice President or Vice Presidents, including an Executive or Senior Vice President, a Controller, and one or more Assistant Secretaries and one or more Assistant Treasurers, who shall be elected by the Directors at their regular annual meeting immediately following each annual meeting of the stockholders. Officers shall hold office until the next annual meeting of the Board of Directors unless otherwise provided in these By-Laws, and until their successors are elected and qualify. The Chairman of the Board and the President shall be elected from among the Directors. Any person may hold two or more offices, except that the President may not also be Secretary or an Assistant Secretary. No person holding two or more offices shall sign any instrument in the capacity of more than one office. 2. If there be a Chairman of the Board, he shall preside at all meetings of the stockholders and of the Board of Directors (otherwise the President shall preside at such meetings), and shall also perform such other duties as may be prescribed by the Board of Directors. 3 4 3. The other officers of the Corporation shall have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors. 4. In the case of the absence or inability to act of any officer of the Corporation, and of any person herein authorized to act in his place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer or any Director or other person whom they may select. The Board of Directors may delegate duties and powers to any elected or appointed officer of the Corporation even though such duties and powers are vested in other officers of the Corporation. 5. Vacancies in any office arising from any cause may be filled by the Directors at any regular or special meeting. 6. The Board of Directors may appoint such other officers and agents as it shall deem necessary or expedient, who shall hold their offices or appointed positions for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. 7. The salaries of all officers and agents shall be fixed by the Board of Directors. Salaries of all employees of the Corporation (the officers or agents shall not be included within the term "employees" for the purpose of this Section) shall be fixed by the President or a Vice President, except that the President may delegate such powers to other officers or agents as to employees under their immediate control. 8. Any officer or agent elected or appointed by the Board of Directors may be removed, at any time, with or without cause, by the Board of Directors or by the President. ARTICLE VI -- FISCAL YEAR The fiscal year shall terminate at the close of business on the Sunday closest to December 31 of each year. ARTICLE VII -- NOTICES 1. Whenever the laws of the State of Florida or these By-Laws require notice to be given to any Director, officer or stockholder, they shall not be construed to mean personal notices; such notice may be given by telegram or may be given by depositing written notice in a post office or letter box, in a post-paid sealed wrapper, addressed to such Director, officer or stockholder at his or her address as the same appears in the books of the Corporation; and the time when the same shall be mailed shall be deemed to be the time of the giving of such notice. 2. Waiver of any notice in writing, signed by a stockholder, Director or officer, whether before or after the time stated in said waiver for holding a meeting, shall be deemed equivalent to a notice required to be given by the laws of the State of Florida or these By-Laws to any Director, officer or stockholder. This provision of the By-Laws shall be liberally construed. ARTICLE VIII -- ACTION WITHOUT MEETING Nothing contained in these By-Laws shall be deemed to prohibit the Board of Directors of this Corporation or any committee thereof from proceeding in accordance with any provision of the laws of the State of Florida now or hereafter in effect pursuant to which any action of the Board of Directors of the Corporation or of any committee thereof, which is required or permitted to be taken at a meeting, may be taken without a meeting if written consent to the action signed by all the members of the Board of Directors or the committee, as the case may be, is filed in the minutes of the proceedings of the Board of Directors or committee prior to the taking of such action. 4 5 ARTICLE IX -- AMENDMENT OR REPEAL OF BY-LAWS The By-Laws may be amended or repealed by the Board of Directors of the Corporation; provided that notice in general terms of such amendment or repeal has been given to each member of the Board of Directors in writing at least five (5) days prior to said meeting, provided that such notice shall not be required in the event of (a) the signing by all members of the Board of Directors of a Waiver of Notice of meeting incorporating the amendment or the repeal or (b) the presence of all members of the Board of Directors at the meeting at which the amendment or repeal is considered and acted upon by the Board of Directors. ARTICLE X -- INDEMNIFICATION The Corporation shall indemnify every person who was or is a party or is or was threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact he is or was a director, officer, employee, or agent, or is or was serving at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with such action, suit or proceeding, (except in such cases involving gross negligence or willful misconduct) in the performance of their duties to the full extent permitted by applicable law. Such indemnification may, in the discretion of the Board of Directors, include advances of his expenses in advance of final disposition subject to the provisions of applicable law. Such right of indemnification shall not be exclusive of any right to which any director, officer, employee, agent or controlling stockholder of the Corporation may be entitled as a matter of law. ARTICLE XI -- OTHER COMMITTEES The Board of Directors may appoint an Audit and Finance Committee, a Nominating and Compensation Committee and such other committees as the Board of Directors deem appropriate. The number of members of these committees shall consist of such number as are deemed appropriate by the Board of Directors. ARTICLE XII -- CONTROL-SHARE ACQUISITIONS ELECTION Pursuant to Section 607.0902(5) Florida Statutes, the Corporation elects that Section 607.0902 not apply to control-share acquisitions (as defined in the Statute) of the shares of The Wackenhut Corporation (TWC), effective July 28, 1990. 5 EX-4.2 4 LETTER CONCERNING REVOLVING CREDIT AGRMNT 6/8/95 1 EXHIBIT 4.2 June 8, 1995 Mr. Richard C. DeCook Senior Vice President - Finance and Chief Financial Officer The Wackenhut Corporation 1500 San Remo Avenue Coral Gables, FL 33146-3036 Re: The Revolving Credit and Reimbursement Agreement ("Credit Agreement") by and among The Wackenhut Corporation ("The Company"), NationsBank of Florida, National Association ("Agent and Lender"), and Bank of America Illinois ("Lender") dated as January 5, 1995. Dear Mr. DeCook: This letter acknowledges the Agents and Lender release effective June 8, 1995 of all Collateral (including all funds on deposit in the B of A account) pledged under the Letter of Credit Account Agreement dated as of January 5, 1995. In addition, pursuant to Section 2.10 Reduction in Commitment, the Company agrees within 30 days of the Collateral release to reduce the Total Revolving Loan Commitment amount to $50,000,000. The execution and delivery of this letter shall be deemed to expressly or impliedly waive, amend, modify or supplement any provisions of the Credit Agreement other than as set forth herein. This letter may be executed by the parties on separate counterparts, each of which shall be deemed to be an original, and all of which shall together constitute but one and the same instrument. 2 Very truly yours, NationsBank of Florida, National Bank of America Illinois, as Lender Association, as Agent and Lender By: By: ---------------------- ------------------------- Name: John A. Miller Name: Laurens F. Schaad Jr. Title: Vice President Title: Vice President Agreed To: The Wackenhut Corporation Titania Insurance Company of America By: By: ----------------------- ------------------------- Name: Terry P. Mayotte Name: James P. Rowan Title: Assistant Treasurer Title: Vice President EX-4.3 5 LETTER CONCERNING REVOLVING CREDIT AGMNT. 8/24/95 1 EXHIBIT 4.3 August 24, 1995 Mr. John Miller Vice President NationsBank of Florida 150 S. E. 3rd Avenue, Suite 411 Miami, Florida 33131 RE: The $60,000,000 Revolving Credit and Reimbursement Agreement ("The Agreement") by and among The Wackenhut Corporation ("The Company"), NationsBank of Florida N.A. as agent, and Bank of America Illinois. Dear John: Pursuant to Section 2.10: Reduction in Commitment of the above Agreement and further to the Letter Agreement dated June 8, 1995, this letter serves to notify you that effective August 22, 1995 the Total Revolving Loan Commitment is reduced from $60,000,000 to $50,000,000. Sincerely, The Wackenhut Corporation By: ------------------- Name: Terry P. Mayotte Title: Assistant Treasurer EX-4.5 6 FIRST AMENDMENT TO RECEIVABLES PURCH AGMT 12/15/95 1 EXHIBIT 4.5 FIRST AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT THIS FIRST AMENDMENT agreed to as of this 15th day of December, 1995, by and among THE WACKENHUT CORPORATION, a Florida corporation ("Seller"), RECEIVABLES CAPITAL CORPORATION a Delaware corporation ("RCC"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation ("Enterprise"; and together with RCC, the "Purchasers" and each individually a "Purchaser"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association ("BofA"), as agent for RCC, NATIONSBANK, N.A., a national banking association ("NationsBank") as agent for Enterprise (each in such capacity as agent for the specified Purchaser, a "Managing Agent" and together, the "Managing Agents") and BofA, as administrative agent for the Purchasers and the Managing Agents (in such capacity, the "Administrative Agent"). RECITALS A. Seller, RCC, Enterprise, the Administrative Agent and each Managing Agent entered into a Receivables Purchase Agreement dated as of January 5, 1995 (the "Receivables Purchase Agreement"), pursuant to which the Seller has agreed to sell to the Purchasers undivided percentage interests in receivables generated in the ordinary course of its business and in the ordinary course of business of one or more of its wholly-owned subsidiaries. B. Seller, RCC, Enterprise, the Administrative Agent and each Managing Agent now desire to (i) increase the committed amount of the receivables purchase facility to $50,000,000 and (ii) modify the Receivables Purchase Agreement in various particulars as specified herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, it is mutually agreed as follows: 1. Appendix A; Definition of Three-Month Default Ratio. The definition of "Three-Month Default Ratio" in Appendix A of the Receivables Purchase Agreement is hereby deleted in its entirety and the following is inserted in lieu thereof: "'Three-Month Default Ratio' means the ratio (expressed as a percentage) computed as of any Month End Date by dividing (x) the aggregate Unpaid Balance of all Defaulted Receivables calculated as at each of the three most recent Month End Dates less Losses (without giving effect to clause (z) of the definition thereof) calculated as at each of the three most recent Month End Dates by (y) the aggregate Unpaid Balance of all Pool Receivables calculated as at each of the three most recent Month End Dates less Losses (without giving effect to clause (z) of the definition thereof) calculated as at each of the three most recent 2 Month End Dates." 2. Increase Purchase Limit. The term "$40,000,000" in the definition of "Maximum Purchase Limit" in clause (x) of Section 1.02(a) of the Receivables Purchase Agreement is hereby amended to read "$50,000,000". 3. Limit on Three-Month Dilution Ratio. The term "4%" in Section 10.01(j) of the Receivables Purchase Agreement is hereby amended to read "2.5%". 4. Conditions Precedent. This First Amendment shall be effective upon receipt by each Purchaser and the Administrative Agent of an executed original hereof, together with each of the following, each in substance and form acceptable to the Purchasers and the Administrative Agent in their sole discretion: (a) A copy of the resolutions of the Board of Directors of Seller approving this First Amendment and the transactions contemplated hereby, including without limitation the increase of the Maximum Purchase Limit, certified by its Secretary or Assistant Secretary; (b) A certificate of the Secretary or Assistant Secretary of the Seller certifying the names and true signatures of the officers authorized on its behalf to sign this First Amendment; (c) A favorable opinion of associate General Counsel for Seller; and (d) The fee letter, properly executed and delivered by the Seller, and payment of the fee described therein. 5. Representations and Warranties. The Seller hereby represents and warrants as follows: (a) The Seller has all requisite power and authority to execute this First Amendment and to perform all of its obligations hereunder, and this First Amendment has been duly executed and delivered by the Seller and constitutes the legal, valid and binding obligations of the Seller, enforceable in accordance with its terms. (b) The execution, delivery and performance by the Seller of this First Amendment have been duly authorized by all necessary corporate action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, -2- 3 writ, injunction or decree presently in effect, having applicability to the Seller, or the articles of incorporation or bylaws of the Seller, or (iii) result in a breach of, or constitute a default under, any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Seller is a party or by which it or its properties may be bound or affected. (c) All of the representations and warranties of the Seller contained in Article VI of the Receivables Purchase Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date. 6. Original Terms. Except as amended by this First Amendment, all the orginal terms and conditions of the Receivables Purchase Agreement shall remain in full force and effect. 7. Defined Terms. Except as expressly provided herein, all defined terms shall have the same meanings as set forth in the Receivables Purchase Agreement. 8. No Waiver. The execution of this First Amendment and acceptance of any documents related hereto shall not be deemed to be a waiver of any Termination Event under the Receivables Purchase Agreement or breach, default or event of default under any Agreement Document, whether or not known to any Purchaser, Managing Agent or the Administrative Agent and whether or not existing on the date of this First Amendment. 9. Governing Law. THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. 10. Captions. The various captions in this First Amendment are included for convenience only and shall not affect the meaning or interpretation of any provision of this First Amendment. 11. Execution in Counterparts. This First Amendment may be executed, acknowledged or accepted in any number of counterparts, each of which when so executed, acknowledged or accepted shall be deemed to be an original and all of which when taken together shall constitute one and the same First Amendment. 12. Effectiveness. This First Amendment shall be effective upon the receipt by each Purchaser and the Administrative Agent of all fully-executed counterparts and the conditions precedent described in paragraph 4 hereof. -3- 4 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the day and year first above-written. THE WACKENHUT CORPORATION as Seller and initial Servicer By ---------------------------- Title ----------------------- RECEIVABLES CAPITAL CORPORATION, as a Purchaser By ---------------------------- Title ----------------------- ENTERPRISE FUNDING CORPORATION, as a Purchaser By ---------------------------- Title ----------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Managing Agent and as the Administrative Agent By ---------------------------- Vice President NATIONSBANK, N.A., as a Managing Agent By ---------------------------- Vice President SIGNATURE PAGE TO FIRST AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT -4- EX-4.8 7 AMEND #1 TO AMENDED & REST REV CRD AGMNT 5/18/94 1 EXHIBIT 4.8 AMENDMENT NO. 1 TO AMENDED AND RESTATED REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT (the "Amendment Agreement") is made and entered into this 18 day of May, 1994 by and among THE WACKENHUT CORPORATION, a Florida corporation having its principal place of business in Coral Gables, Florida (the "Borrower"), and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, a national banking association in its capacity as agent (the "Agent") for each of the lenders (the "Lenders") party to the Credit Agreement (as defined below). Unless the context otherwise requires, all terms used herein without definition shall have the definition provided therefor in the Credit Agreement. WITNESSETH: WHEREAS, the Borrower, the Agent and the Lenders have entered into the Amended and Restated Revolving Credit and Reimbursement Agreement dated July 1, 1993 whereby the Lenders have made loans and advances to, and issued letters of credit for the benefit of, the Borrower, as at any time hereafter amended, restated, modified or supplemented, the "Credit Agreement"; and WHEREAS, the Borrower, the Lenders and the Agent have agreed that the Credit Agreement shall be amended in the manner set forth herein; NOW, THEREFORE, in consideration of the premises and conditions herein set forth, it is hereby agreed as follows: 1. AMENDMENT. Subject to the conditions hereof, the Credit Agreement is hereby amended, effective as of the date hereof, as follows: (a) Section 1.01 thereof is hereby amended as follows: (i) to include, immediately preceding the definition of "Business Day," the following definition: " 'Bridge Note' means the $4,500,000 Term Note of Wackenhut Corrections Corporation dated May , 1994 and payable to the order of NationsBank, as the same may be extended, modified, substituted or replaced;" (ii) the definition of "Total Revolving Loan Commitment" is hereby amended in its entirety to read as follows: " 'Total Revolving Loan Commitment' means (i) for the period from the Closing Date to September 30, 1994, $60,000,000 less the greater of (a) $20,000,000 if the Company shall sell any of its capital stock, or (b) the net proceeds received by the Company from any other financing permitted under this Agreement (other than a refinancing of Indebtedness of The Atrium at Coral Gables, Ltd., so long as the proceeds of such financing are applied to pay such Indebtedness and the balance, if any, to reduce the Total Revolving Loan Commitment), and (ii) after September 30, 1994, $40,000,000, as reduced pursuant to Section 2.10 hereof; PROVIDED, HOWEVER, that the Total Revolving Loan Commitment as determined above shall be further reduced by an amount equal to the principal outstanding under the Bridge Note as of the date of such determination;" (b) Section 7.09(b)(i) thereof is hereby amended in its entirety to read as follows: "(i) Indebtedness arising under this Agreement and the Bridge Note," (c) Section 8.01 thereof is hereby amended to add a new paragraph (l) as follows and to renumber existing paragraph (l) as paragraph (m): 2 "(l) Any Default or Event of Default (as defined therein) shall have occurred under the Bridge Note; or" 2. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and the Lenders to enter into this Amendment Agreement, the Borrower hereby represents and warrants that the Credit Agreement has been re-examined by the Borrower and that except as disclosed by the Borrower in writing to the Lenders as of the date hereof: (a) The representations and warranties made by the Borrower in Article IV thereof are true on and as of the date hereof; (b) There has been no material change in the condition, financial or otherwise, of the Borrower and its Subsidiaries since April 4, 1993 other than changes in the ordinary course of business, none of which has been a material adverse change; (c) The business and properties of the Borrower and its Subsidiaries are not, and since April 4, 1993 have not been, adversely affected in any substantial way as the result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo, riot, activities of armed forces, war or acts of God or the public enemy, or cancellation or loss of any major contracts; and (d) After giving effect to this Amendment Agreement no condition exists which, upon the effectiveness of the amendment contemplated hereby, would constitute a Default or an Event of Default on the part of the Borrower under the Credit Agreement or the Notes, either immediately or with the lapse of time or the giving of notice, or both. 3. CONSENT TO SALE OF CAPITAL STOCK. The Agent and the lenders hereby consent to the issuance and sale of up to 31% (as determined on the date of such sale) of the outstanding capital stock of Wackenhut Corrections Corporation to a Person other than the Borrower or a Wholly-Owned Restricted Subsidiary. 4. CONDITIONS PRECEDENT. The effectiveness of this Amendment Agreement is subject to the receipt by the Agent of the following: (i) four counterparts of this Amendment Agreement duly executed by all signatories hereto; (ii) opinion of counsel for the Borrower as to the authorization, execution and delivery of this Amendment Agreement and the enforceability of the same against the Borrower in accordance with its terms; (iii) an amount equal to the aggregate legal fees incurred by the Agent in connection with the negotiation, review and execution of this Amendment Agreement; and (iv) copies of all additional agreements, instruments and documents which the Agent may reasonably request, such documents, when appropriate, to be certified by appropriate governmental authorities. All proceedings by the Borrower relating to the matters provided for herein shall be satisfactory to the Lenders, the Agent and their counsel. 5. ENTIRE AGREEMENT. This Amendment Agreement sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, condition, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and no one of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment Agreement otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any party to the other. None of the terms or conditions of this Amendment Agreement may be changed, modified, waived or canceled orally or otherwise, except by writing, signed by all the parties hereto, specifying such change, modification, waiver or cancellation of such terms or conditions, or of any proceeding or succeeding breach thereof. 2 3 6. FULL FORCE AND EFFECT OF AGREEMENT. Except as hereby specifically amended, modified or supplemented, the Credit Agreement and all other Loan Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. 7. COUNTERPARTS. This Amendment Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. 8. GOVERNING LAW. THIS AMENDMENT AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF FLORIDA, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY (i) SUBMITS TO THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS OF FLORIDA FOR THE PURPOSES OF RESOLVING DISPUTES HEREUNDER OR UNDER ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY OR FOR PURPOSES OF COLLECTION AND (ii) WAIVES TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION. 9. ENFORCEABILITY. Should any one or more of the provisions of this Amendment Agreement be determined to be illegal or unenforceable as to one or more of the parties hereto, all other provisions nevertheless shall remain effective and binding on the parties hereto. 10. CREDIT AGREEMENT. All references in any of the Loan Documents to the Credit Agreement shall mean and include the Credit Agreement as amended hereby. 11. SUCCESSORS AND ASSIGNS. This Amendment Agreement shall be binding upon and inure to the benefit of each of the Borrower, the Lenders, the Agent and their respective successors, assigns and legal representatives; PROVIDED, however, that the Borrower, without the prior consent of the Lenders, may not assign any rights, powers, duties or obligations hereunder. [Remainder of page intentionally left blank.] 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. BORROWER: (CORPORATE SEAL) THE WACKENHUT CORPORATION ATTEST: By: /s/ Richard C. DeCook -------------------------------------------- Name: Richard C. DeCook ------------------------------------------ Title: SR. V.P. ----------------------------------------- - -------------------------------------------- Asst. Secretary
Signature Page 1 of 2 5 NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, as Agent for the Lenders By: /s/ John A. Miller ------------------------------------ Name: John A. Miller ------------------------------------ Title: Vice President ------------------------------------ NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, as Lender By: /s/ John A. Miller ------------------------------------ Name: John A. Miller ------------------------------------ Title: Vice President ------------------------------------ Signature Page 2 of 2 EX-10.3 8 EXECUTIVE RETIREMENT PLAN 1 EXHIBIT 10.3 [WACKENHUT LOGO] THE WACKENHUT CORPORATION EXECUTIVE RETIREMENT PLAN (EFFECTIVE MARCH 1, 1989) As Amended and Revised December 27, 1989 and As Further Amended and Revised April 24, 1993 2 TABLE OF CONTENTS PAGE ---- INTRODUCTION ii ARTICLE I DEFINITIONS 1 ARTICLE II PARTICIPANT ELIGIBILITY 2 ARTICLE III BENEFITS 3 ARTICLE IV WHEN BENEFITS ARE PAYABLE 3 ARTICLE V ADMINISTRATION 6 ARTICLE VI AMENDMENT, TERMINATION AND EXCEPTIONS 7 ARTICLE VII MISCELLANEOUS 7
i 3 ARTICLE I DEFINITIONS 1.0 DEFINITIONS. The following terms when used in this Plan shall have the following meanings unless a different meaning is clearly required by the context. 1.1 TWC. The Wackenhut Corporation. 1.2 EMPLOYER. TWC and any of its subsidiary corporations. 1.3 BENEFICIARY. The beneficiary or beneficiaries of a Participant in accordance with Section 4.7. If more than one beneficiary survives the Participant, payments shall be made equally to the surviving beneficiaries, unless otherwise provided. Nothing herein shall prevent the Participant from designating primary and contingent beneficiaries. 1.4 COMMITTEE. The Administrative Committee appointed to administer the Plan pursuant to Article V. 1.5 DISABILITY. A Participant's inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or be of long continued and indefinite duration. Disability is determined and approved by the Committee based on medical evidence submitted by the Participant's physician or a physician approved by the Committee. A determination by the United States Social Security Administration that a Participant is disabled for Social Security purposes shall be conclusive and binding upon the Committee. 1.6 EMPLOYEE. An Employee of an Employer. 1.7 PARTICIPANT. Any Employee who participates in this Plan in accordance with Article II. 1.8 PERIOD OF SERVICE. The period of time during which an Employee is employed by an Employer. 1.9 PLAN. The Wackenhut Corporation Executive Retirement Plan as it may from time to time be amended. 1.10 RETIREMENT. The first date upon which the Participant shall separate from service and attain Normal Retirement Age. 1 4 1.11 SEPARATION FROM SERVICE. Severance of the Participant's employment with the Employer. A Participant shall be deemed to have severed his employment with the Employer for purposes of this Plan when, in accordance with the established practices of the Employer, the employment relationship is considered to have actually terminated. 1.12 NORMAL RETIREMENT AGE. Age 65. 1.13 FAS. The average salary of a Participant earned during his or her last five (5) years of employment with an Employer. Such salary does not include any bonuses, but does include any deferred salary which is included in the year in which it is earned, not in the year of payment. 1.14 LONG TERM DISABILITY (LTD) BENEFITS. LTD benefits are those payable by The Wackenhut Corporation Long Term Disability plan in effect from time to time and normally offered to Employees under the TWC "005" plan. ARTICLE II PARTICIPANT ELIGIBILITY 2.1 INITIAL ELIGIBLE EMPLOYEES. The attached list of individuals are those Employees who have been approved for participation at the inception of the Plan. See Exhibit A. Participants shown on Exhibit A who are age 55 or over at inception of the Plan shall not be eligible for Early Retirement pursuant to Section 4.2 of the Plan. 2.2 OTHER ELIGIBLE EMPLOYEES. (as amended April 24, 1993). In addition to those initially eligible, employees holding the following positions with applicable time periods may be selected to participate in the Plan.
Position Time Period -------- ----------- Any Officer of TWC After having been an Officer of TWC for two years President of a major After two years of service Business Unit of Employer (excluding WATCI, WMSI and WASI) Sr. Vice President at After having been in position for two years Group Level Sr. Vice President at After ten years of service and having been Division Level in position for two years
2 5 Vice President at After ten years of service and having been Division Level in position for two years Such key executives shall be suggested by the Corporate Retirement Committee, and be finally approved for participation in the Plan by the Nominating and Compensation Committee of the Board of Directors of TWC. 2.3 EXCLUDED EMPLOYEES. No Senior Vice President, Executive Vice President, President, or Chairman of the Board of TWC shall be selected for participation in the Plan if such officer has elected coverage under an individual Deferred Compensation Agreement (the Senior Plan) between himself and TWC. Any such officer may elect to be included under this Plan and not the Senior Plan at the time he or she becomes eligible for the Senior Plan. ARTICLE III BENEFITS 3.1 BENEFIT COMPUTATION. The basic Benefit Formula is a product of forty-five percent (45%) of the FAS of a Participant at Normal Retirement Age after twenty-five (25) years of service, reduced by one hundred percent (100%) of any social security benefits for which the Participant is eligible at the time of his or her retirement. 3.2 YEARS OF SERVICE COUNTED. All years of service with the Employer, including years of service prior to participation in the Plan, are includible for purposes of the Benefit Computation in Section 3.1 above. Years of service in excess of twenty-five (25) years are not considered for purposes of the Benefit Computation. No benefits will be payable to any participant with less than ten (10) years of service with TWC or its subsidiaries. Years of service after a Participant reaches age 65 will be counted to allow a Participant to reach the maximum of 25 years of service. 3.3 BENEFITS WITH LESS THAN 25 YEARS OF SERVICE. For years of service with TWC and its subsidiaries in excess of ten (10) years, but less than twenty-five (25) years, the Benefit Computation in Section 3.1 above shall be 1.8% times the number of years of service to arrive at the Benefit Formula to be applied. Thus, a Participant who had twenty (20) years of service at the time of his or her entitlement to Benefits under this Plan would have a Benefit Formula of thirty-six percent (36%) of FAS reduced by one hundred percent (100%) of any social security benefits for which the Participant is eligible at the time of his or her retirement. 3 6 ARTICLE IV WHEN BENEFITS ARE PAYABLE 4.1 RETIREMENT. Upon retiring at Normal Retirement Age, a Participant shall be paid monthly 1/12th of the annual amount determined under the applicable Benefit Formula provided in either Section 3.1 or 3.3 either for the rest of his or her life or under the two optional forms of payment indicated in 4.1.1 and 4.1.2 below. Such payments shall begin the first day of the month following such retirement. The following is an example of the Benefit Computation. An Executive retires at age 65 with twenty-five (25) years of service. The FAS is $80,000 and the social security entitlement is $10,700 annually at the time of his or her retirement. 45% x $80,000 = $36,000 Less Annual Social Security -10,700 ------- Plan pays annually for life $25,300 ------- Monthly payment for life $2,109 -------
4.1.1 LIFE WITH TEN YEARS CERTAIN. A Participant may elect the actuarially determined equivalent of the payments for life to be paid for his or her life with ten (10) years of such determined payment to be made in any event either to the retired Participant or to his designated Beneficiary. 4.1.2 JOINT AND SURVIVOR OPTIONS. A Participant may elect the actuarially determined equivalent of the payments for life to be paid for the lives of the Participant and another person. 4.2 EARLY RETIREMENT. If a Participant is at least age 55 and has at least twenty (20) years of service with the Employer, he or she may elect to retire at any time before age 65, but the amount of the Benefits otherwise payable to the Participant shall be reduced by a factor of 4% for each year (or fraction thereof) that the Participant is under Normal Retirement Age. The Benefit Calculation provided in Sections 3.1 or 3.3 would be made using an estimated amount of social security which would be payable to the Participant at age 65. The following is an example of the Benefit Computation. An Executive retires early at age 62 with twenty-two (22) years of service. His FAS is $80,000 and his estimated social security entitlement at age 65 is $10,700 annually. 1.8% x 22 x $80,000 = $31,680 Less estimated Social Security -10,700 ------------ Benefit that is payable at age 65 $20,980 Early retirement factor 100% - 3(4%) = x 88% Annual Benefit payable at age 62 $18,462 ------------
4 7 Monthly payment for life $ 1,538 ------- 4.3 PRE-RETIREMENT DEATH BENEFIT. In the event of the death of a Participant prior to his or her retirement, a benefit shall be payable to his or her designated Beneficiary for a period of ten (10) years. This death benefit shall be computed by using the applicable Benefit Formula in either Section 3.1 or 3.3 as if the Participant had attained Normal Retirement Age, reduced by fifty percent (50%), but without any reduction for social security benefits. 4.3.1 TIME OF DISTRIBUTION. Distribution shall commence to be made as soon as administratively practicable following the date on which the Committee receives written notification of the Participant's death in the manner prescribed by the Committee. 4.4 DISABILITY BENEFIT. In the event of the Disability of a Participant prior to his or her retirement, a benefit shall be payable to such Participant commencing at the time LTD benefits as defined in Section 1.14 cease. This disability benefit shall be computed by using the applicable Benefit Formula in either Section 3.1 or 3.3 based upon the years of service and compensation of the Participant prior to his or her Disability. The benefit is computed as if the Participant had attained Normal Retirement Age, and is payable as selected by the Participant under Section 4.1 of this Plan. Any benefit payable under this Section shall be computed as if the Participant were eligible to receive LTD benefits for the period described in the LTD plan defined in Section 1.14, whether the Participant is actually covered by such LTD plan or not. 4.5 DELAY IN PAYMENT. Notwithstanding any other provision of the Plan, if the amount of a payment otherwise required to be made on any date under the Plan cannot be ascertained by such date, or if the Participant (or Beneficiary, if applicable) fails to provide proper written notification of his claim for a benefit to the Committee, or if it is not possible to make such payment on such date because the Committee cannot locate the Participant (or Beneficiary) after making reasonable efforts to do so, such payment may be made no later than 60 days after the earliest date on which such payment can be ascertained or proper notification is received or the Participant is located (whichever is applicable). 4.6 PROOF OF DEATH. The Committee may require such proof of death and such evidence of the right of any person to receive all or part of the death benefit of a deceased Participant as the Committee may deem desirable. 4.7 DESIGNATION OF BENEFICIARY. Every Participant shall be furnished with a form on which he may designate a Beneficiary to receive the benefits due him under the Plan in the event of his death during employment, or before all payments due are made. 4.7.1 A Participant may change any such designation by signing and filing with the Committee a new Designation of Beneficiary. 5 8 4.7.2 If no Beneficiary is designated, or if the designated Beneficiary has not survived the Participant, and if no alternative designation of Beneficiary shall be effective, the Participant's Beneficiary shall be his surviving spouse, or if no spouse survives the Participant, the estate of the deceased Participant. 4.7.3 If the Beneficiary cannot be located for a period of one year following the Participant's death despite mailing to the Beneficiary's last known address and if the Beneficiary has not made a written claim within such period to the Committee, such Beneficiary shall be treated as having predeceased the Participant. 4.8 PARTICIPANT'S RIGHTS UNSECURED. The right of the Participant or his Beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of the Employer, and neither the Participant nor his Beneficiary shall have any rights in or against any specific assets of the Employer. Benefits may not be encumbered or assigned by a Participant or any Beneficiary. 4.9 FORFEITURE OF BENEFITS. Notwithstanding any other provision of this Plan, all benefits otherwise payable to a Participant may be forfeited if the Committee determines that such Participant has become employed by a competitor of the Employer either as an employee or a consultant. ARTICLE V ADMINISTRATION 5.1 THE COMMITTEE. The Plan will be administered by the Corporate Retirement Committee (the Committee) comprised of the President, the Chief Financial Officer, the Chief Legal Officer, and the Vice President, Human Resources of TWC. 5.2 POWERS AND AUTHORITY OF COMMITTEE. Except as otherwise expressly provided in the Plan, the Committee will have all powers necessary or helpful for the carrying out of its duties and responsibilities under the Plan, and its decisions or actions in good faith in respect of any matter hereunder will be final, conclusive and binding upon all parties concerned. 5.3 LIABILITY LIMITED. Except as otherwise provided by law, no person who is a member of the Committee or who is an employee, officer and/or director of the Employer will incur any liability whatsoever on account of any matter connected with or related to the Plan, unless such person has acted in bad faith, or has willfully neglected his duties, in respect of the Plan. 5.4 RELIANCE ON INFORMATION. The members of the Committee, the Employer, and its respective officers, directors and employees will be entitled to 6 9 rely upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, insurance company, counsel, physician or other expert who is engaged by the Committee. The members of the Committee, the Employer, and its respective officers, directors, and employees will be fully protected in respect of any action taken or suffered by them in good faith in reliance thereon, and all action so taken or suffered shall be conclusive upon all persons affected thereby. 5.5 GENUINENESS OF DOCUMENTS. The Committee, the Employer, and its respective officers, directors and employees, will be entitled to rely upon any notice, request, consent letter, telegram or other paper or document believed by them or any of them, in good faith, to be genuine and to have been signed or sent by the proper person. 5.6 PROPER PROOF. In any case in which the Committee or the Employer is required under the Plan to take action upon the occurrence of any event, they will be under no obligation to take such action unless and until proper and satisfactory evidence of such occurrence has been received by them. ARTICLE VI AMENDMENT, TERMINATION AND EXCEPTIONS 6.1 MODIFICATION OR AMENDMENT. The Board of Directors of TWC may at any time amend this Plan; provided, however, that such amendment shall not affect the rights of the Participants or their Beneficiaries with respect to any benefits accrued or payable before the date of any such amendment. 6.2 TERMINATION OF PLAN. The Board of Directors of TWC may, in its sole discretion, terminate the Plan at any time; provided, however, such termination shall not affect the rights of Participants or their Beneficiaries with respect to any benefits accrued or payable before the date of such termination of this Plan. 6.3 EXCEPTIONS. The Nominating and Compensation Committee of the Board of Directors of TWC may make individual exceptions to the Plan from time to time to broaden the provisions of the Plan to be more favorable to a Participant than the provisions of the Plan. No exceptions may be made by such Committee to narrow the coverage of the Plan or to make exceptions which are less favorable to a Participant. 7 10 ARTICLE VII MISCELLANEOUS 7.1 NO IMPLIED RIGHTS. Neither the establishment of the Plan nor any modification thereof, shall be construed as giving any Participant, Employee, Beneficiary or other person any legal or equitable right unless such right shall be specifically provided in the Plan or conferred by affirmative action of the Committee or the Nominating and Compensation Committee of the Board of Directors of TWC in accordance with the terms and provisions of the Plan. 7.2 STATUS OF EMPLOYMENT RELATIONS. Nothing in this Plan shall be deemed to: 7.2.1 Give to any employee the right to be retained in the employ of TWC; 7.2.2 Affect the right of TWC to discipline or discharge any employee at any time; 7.2.3 Give TWC the right to require any employee to remain in its employ; or 7.2.4 Affect any employee's right to terminate his employment at any time. 7.3 BINDING EFFECT. The provisions of the Plan shall be binding on the Employer, the Committee and their successors and on all persons entitled to benefits under the Plan and their respective heirs, legal representatives and successors in interest. 7.4 GOVERNING LAWS. The Plan shall be construed and administered according to the laws of the State of Florida to the extent that such laws are not preempted by the laws of the United States of America. 7.5 USAGE. Whenever applicable, the masculine gender, when used in the Plan, shall include the feminine and neuter genders, and the singular shall include the plural. 7.6 CAPTIONS. The captions contained herein are inserted as a matter of convenience and for reference only, and in no way define, limit, enlarge or describe the scope or intent of the Plan nor in any way shall affect the Plan or the construction of any provisions thereof. 7.7 RABBI TRUST. This Plan shall be complemented by a "Rabbi" or "Springing Trust" which shall make reference to this Plan and which shall provide some measure of security for the otherwise unfunded benefits contemplated by this Plan. 8 EX-10.4 9 AMENDED & RESTATED LIFE INS. AGMNT 1 EXHIBIT 10.4 AMENDED AND RESTATED SPLIT DOLLAR LIFE INSURANCE AGREEMENT I Parties A. The Wackenhut Corporation ("Employer"), 1500 San Remo Avenue, Coral Gables, Florida 33146; B. The George Wackenhut Irrevocable Trust dated January 25, 1982 ("GW Trust"), c/o Northern Trust Bank, 700 Brickell Avenue, Miami, Florida 33131; C. The Ruth Wackenhut Irrevocable Trust dated January 3, 1983 ("RW Trust"), c/o Northern Trust Bank, 700 Brickell Avenue, Miami, Florida 33131; D. George Wackenhut ("Employee"), 1500 San Remo Avenue, Coral Gables, Florida 33146. II Definitions A. The "Parties" are the persons listed in paragraphs IA, IB, IC, and ID above; B. The "Owners" (sometimes also referred to as "Owner"), are the GW Trust and the RW Trust; C. The "Agreements" are the two agreements identified in paragraphs IIIA and IIIB below; D. This Amended and Restated Split Dollar Life Insurance Agreement is referred to as the "Restated Agreement"; 2 E. The "Insurer" is the Manufacturers Life Insurance Company ("Manufacturers"). F. The "Policy" is the policy issued by Manufacturers and listed on Schedule A; G. The "Employer's Policy Interest" is the total amount to be paid to Employer as specified in paragraph IVD. III Recitals A. On January 25, 1982 certain of the Parties hereto entered into an Agreement Relating to Advancements for Life Insurance on the Life of George R. Wackenhut and Other Provisions Relating Thereto. That Agreement is to expire after the eighth anniversary date, unless extended by the Parties. B. On January 3, 1983, certain of the Parties hereto entered into an Agreement Relating to Advancements for Life Insurance on the Life of Ruth J. Wackenhut and Other Provisions Relating Thereto. That Agreement is to expire after the eighth anniversary date, unless extended by the Parties. C. The respective Parties now desire to amend and entirely restate the Agreements described in paragraphs IIIA and IIIB above to extend the terms thereof and to reflect that new coverage has been purchased in furtherance of those Agreements. 2 3 D. Employer is a corporation duly organized and validly existing under the laws of Florida. E. Employee is the Chairman and Chief Executive Officer of Employer and is a valued and trusted employee. F. In consideration of the faithful performance of services by Employee for Employer, Employer wishes to continue assisting Owner in paying the premiums on a life insurance policy by contributing from time to time, to the payment of premiums due on the policy on the life of Employee and Ruth Wackenhut and to provide a means for payment to Employer of all amounts it is entitled to receive under the Agreements and this Restated Agreement, all in accordance with the terms and conditions of this Restated Agreement. G. Employer and Employee have agreed that the Policy insuring the lives of Employee and Ruth Wackenhut, his wife, issued by Manufacturers, which was purchased by and is owned by the Owners, is subject to the terms and conditions of this Restated Agreement. H. Each Owner is an irrevocable trust under the laws of Florida. NOW, THEREFORE, in consideration of $10.00 and other good and valuable consideration, the parties mutually agree as follows: 3 4 IV Terms A. Acquisition of Policy. The Parties shall cooperate in paying the annual premiums on the Policy as long as the Policy remains in force. The Policy was issued to the Owner as owner and the Owner shall be the sole and exclusive owner of the Policy. B. Payment of Premiums. Employer has paid the Policy premiums through March 1, 1990. All premium payments thereafter shall be paid by the Employer and the Owner in accordance with the formula set forth in this paragraph IVB(1), IVB(2), IVB(3) and IVB(4) below. Unless otherwise agreed to by the Employer and the Owner, all premium payments on the Policy are to be made in accordance with and subject to the following terms and conditions: (1) On or before thirty days prior to the due date of each required premium on the Policy (not including any grace period), the Employer shall pay to Owner the amount specified in Schedule B for the applicable policy year for each year that this Restated Agreement is in force. (2) Owner shall pay to the Insurer the amount received by it under paragraph IVB(1) above and the amount specified in Schedule C for the applicable policy year for each year that this Restated 4 5 Agreement is in force. Owner's share of the premium has been calculated using the Insurer's current published premium rate for annual renewal term insurance for standard risks for joint lives; if this is adjusted by Insurer in the future, Owner's share of the premium will be adjusted accordingly. (3) Owner shall pay its portion of each premium on a date no later than a date within the grace period allowed by the Policy. Upon request by Employer, Owner shall provide Employer with proof of payment. (4) To the extent the Employer fails to pay a portion of any premium due on the Policy, as required by paragraph IVB(1) above, the Owner may, at its option, pay all or any portion of the premium and deduct that amount from the total amount of the Employer's Policy Interest, notwithstanding any other provision of this Agreement. Notwithstanding anything herein to the contrary, to the extent the Employer fails to pay a portion of any premium due on the Policy or pay the additional compensation payable under the following paragraph IVC, neither the Owner, Employee or any other person shall have the obligation to pay such premium due on the Policy. C. Additional Compensation. As additional compensation to Employee, the Employer also shall pay to Employee, if 5 6 living, or to his wife is he is then deceased, an amount equal to the Owner's portion of the annual premium, as specified in Schedule C. Employee and Ruth Wackenhut agree to contribute to Owner all amount received by either of them under the prior sentence of this paragraph IVC. D. Disbursement of Policy Proceeds by Owner. In consideration of the Employer's agreement to continue to contribute to the payment of the premiums in the manner set forth in this Restated Agreement, Owner agrees to repay to Employer, at the time and in the manner provided in this Restated Agreement, the sum of $760,000 in full settlement of all amounts due or to become due under this Restated Agreement. E. Policy Ownership. Owner is the owner of the Policy and may exercise all rights of ownership with respect to the Policy. Such rights include the privilege to exercise all the rights of an owner under the terms of the Policy, including the right to borrow on the security of the Policy, but only to the extent that the cash value exceeds the Employer's Policy Interest; to pledge or assign the interest in the Policy for such loans or advances; the right, in the event of a termination of this Restated Agreement, to realize against the cash value of the Policy and to retain the cash received after satisfying the Owner's obligation to pay to Employer the Employer's Policy Interest; the right of Owner pursuant to paragraph IVG, to collect the Policy proceeds and to retain the balance of the proceeds remaining after satisfying the Owner's 6 7 obligations to pay to Employer the Employer's Policy Interest; and the right, subject to the right of Employer to be paid its Policy Interest, to surrender the Policy. Employer agrees to sign any documents necessary to assist Owner in exercising its rights under this Restated Agreement. Owner also has the right to assign its ownership rights to any person or entity it, in its absolute discretion chooses. F. Application of Policy Dividends. Any annual dividend attributable to the Policy will be applied to the reduction of the Employer's portion of premiums due on the Policy pursuant to paragraph IVB(1). G. Death. In the event of the death of the survivor of Employee and Ruth Wackenhut while this Restated Agreement is in force: (1) Employer shall be entitled to that portion of the proceeds of the Policy equal to the amount of Employer's Policy Interest. (2) Owner shall be entitled to the proceeds of the Policy in excess of the amount of the Employer's Policy Interest. H. Ownership. Notwithstanding anything herein contained to the contrary, in no event shall Employer have any ownership or security interest in any assets of Owner, including but not limited to, the Policy. 7 8 I. Termination of Restated Agreement. (1) Subject to fulfillment of the obligations arising upon termination hereinafter set forth, this Restated Agreement shall terminate on the first to occur of the following events (each referred to herein as a "Termination Event"): (i) Delivery of written notice of termination by Employer to Owner. (ii) Surrender of the Policy by Owner with the written consent of the Employer. (iii) At the option of Employer, termination of Employee's employment with Employer for any reason, by either Employer or Employee, with or without cause. (iv) Bankruptcy or receivership of the Employer. (2) Within fifteen (15) work days following a Termination Event, Owner, in Owner's sole discretion, shall take one of the following actions: (i) Surrender the Policy and pay to Employer the Employer's Policy Interest to the extent of the cash surrender value. (ii) Retain all or a portion of the Policy and pay to Employer the Employer's Policy Interest to 8 9 the extent of the cash surrender value. J. Provisions Regarding the Insurance. The parties acknowledge and agree as follows: (1) Manufacturers shall be bound only by the provisions of the Policy and any endorsement thereto. (2) Any payment made or actions taken by Manufacturers in accordance with the provisions of the Policy and any endorsement thereto shall fully discharge Manufacturers from all claims, suits and demands of all persons whatsoever. (3) Manufacturers shall not be deemed a party to, or to have notice of, this Restated Agreement or the provisions hereof and shall have no obligation to see to the performance of the obligations of the parties hereunder. K. Special Provisions. In compliance with the requirements of the Employee Retirement Income Security Act of 1974, as amended, the parties hereby confirm: (1) Employer is the named fiduciary of the split dollar life insurance plan of which this Amended and Restated Agreement is the written instrument. (2) The funding policy of the split dollar life insurance plan is that the Employer will pay the premiums under the Policy as required under paragraph IVB above. (3) The following claims procedure shall be utilized: 9 10 (i) The claimant shall file a claim for benefits by notifying Employer orally or in writing. If the claim is wholly or partially denied, Employer shall provide a written notice within ninety (90) days specifying the reason for the denial, the provisions of this Amended and Restated Agreement on which the denial is based, and additional material or information, if any, necessary for the claimant to receive benefits. Such written notice shall also indicate the steps to be taken by the claimant if a review of the denial is desired. (ii) If a claim is denied and a review is desired, the claimant shall notify the Employer in writing within sixty (60) days after receipt of written notice of a denial of a claim. In requesting a review, the claimant may review plan documents and submit any written issues and comments the claimant feels are appropriate. Employer shall then review the claim and provide a written decision within sixty (60) days of receipt of a request for a review. This decision shall state the specific reasons for the decision and shall include references to specific provisions of this Restated Agreement, if any, upon which the decision is based. (iii) In no event shall Employer's 10 11 liability under this Restated Agreement exceed the amount of proceeds from the Policy. L. Amendment. This Restated Agreement may be altered, amended or modified, including the addition of any extra policy provisions, but only by a written instrument signed by all of the Parties. M. Assignment. One or more of the parties may assign such party's interests and obligations under this Restated Agreement at any time subject to the terms and conditions of this Restated Agreement. N. Governing Law. This Restated Agreement shall be governed by the laws of the State of Florida. O. Entire Agreement. This Restated Agreement sets forth the entire agreement of the parties with respect to the subject matter hereof. Any and all prior agreements or understandings with respect to such matters are hereby superseded. IN WITNESS WHEREOF, the parties have signed this Restated Agreement as of the 17th day of October, 1989. Employer: THE WACKENHUT CORPORATION Attests: /s/ J. P. Rowan By: /s/ J. Calvin Harris ---------------------- -------------------------- 11 12 Owner: GEORGE WACKENHUT IRREVOCABLE TRUST Northern Trust Bank, N.A. Co-Trustee By: /s/ Deanne M. RT ------------------------------------ /s/ Donald B. Paul ------------------------------------ Donald B. Paul, CPA Co-Trustee Owner: RUTH WACKENHUT IRREVOCABLE TRUST Northern Trust Bank, N.A. Co-Trustee By: /s/ Deanne M. RT ------------------------------------ /s/ Donald B. Paul ------------------------------------ Donald B. Paul, CPA Co-Trustee Employee: /s/ G. R. Wackenhut ------------------------------------ George Wackenhut Employee's Wife /s/ Ruth Wackenhut ------------------------------------ Ruth Wackenhut 12 13 Schedule A
Company Policy # Face Amount - ------- -------- ----------- Manufacturers Life Insurance Company 5,130,509-2 $800,000
14 Schedule B Employer Premium Payments Per Paragraph IVB(1)
Year Employer's Premium ---- ------------------ 1 $16,481 2 16,470 3 16,456 4 16,440 5 16,421 6 16,399 7 16,372 8 16,341 9 16,304 10 16,261 11 16,209 12 16,149 13 16,078 14 15,994 15 15,897 16 15,782 17 15,648 18 15,491 19 15,311 20 15,097
If there are premium payments due after year 20, the annual premium payments will continue to be $16,543 annually with the Employer's portion reduced by the amounts paid by Owner as determined under Schedule C. 15 Schedule C Owner Premium Payments Per Paragraph IVB(2)
Year Owner's Premium ---- ------------------ 1 $ 62 2 74 3 87 4 103 5 122 6 144 7 171 8 202 9 239 10 282 11 334 12 394 13 465 14 549 15 646 16 761 17 895 18 1,052 19 1,232 20 1,446
If there are premium payments due after year 20, the annual premium payments to be paid by the Owner will be the lower of the P.S. 58 amount or the current premium rate for annual renewal term insurance for standard risks published by Manufacturers. EX-10.5 10 OFFICE LEASE 4/18/95 1 EXHIBIT 10.5 REFERENCED DATA Any reference in this lease to the following subjects shall incorporate therein the data stated for the subject(s) in this Section: DATE OF LEASE: April 18, 1995 LANDLORD: Daniel S. Catalfumo, as Trustee under F.S. 689.071 LANDLORD'S ADDRESS: 1540 Latham Road, WPB, FL 33409 TENANT: The Wackenhut Corporation TENANT'S ADDRESS: 1500 San Remo Avenue Coral Gables, FL 33416-3036 DEMISED PREMISES: Ninety Thousand Five Hundred (90,500) square feet on the second through fourth (2nd - 4th) floors and a portion of the first floor of the Building. For all purposes hereof the Building shall be deemed to contain Ninety-four Thousand Nine Hundred Fifty-six (94,956) square feet (the "Building Area"). LEASE TERM: Fifteen (15) Years. ESTIMATED DATE OF SUBSTANTIAL COMPLETION: January 16, 1996 RENTAL COMMENCEMENT DATE: February 15, 1996 EXPIRATION DATE OF LEASE TERM: February 28, 2011 ANNUAL RENTAL: One Million Seven Hundred Sixty-Four Thousand Seven Hundred Fifty Dollars and 00/100 ($1,764,750.00) calculated at the rate of $19.50 per square foot. TENANT'S PROPORTIONATE SHARE: 94.98% PERMITTED USES: General Business and Office Use SECURITY DEPOSIT: N/A OPTIONS TO RENEW: Three (3) Five (5) year options WITNESSES: LANDLORD: - ---------------------------- -------------------------- DANIEL S. CATALFUMO, as Trustee - ---------------------------- under F.S. 689.071 TENANT: THE WACKENHUT CORPORATION - -------------------------- by -------------------------- Senior Vice-President 2 OFFICE LEASE THIS LEASE made and entered into as of the 18th day of April, 1995 by and between DANIEL S. CATALFUMO, as Trustee under F.S. 689.071, (hereinafter referred to as "Landlord") and THE WACKENHUT CORPORATION (hereinafter referred to as "Tenant"). W I T N E S S E T H: 1. Demised Premises. A. Landlord is or will become the Owner of a 7.7 acre tract of land (the "Land") situated adjacent to I-95 at the corner of RCA Boulevard and Northcorp Parkway, in Palm Beach Gardens, Florida, more particularly described in Exhibit "A" attached hereto. Landlord shall construct upon said Land a four (4) story building to be known as "The Wackenhut Center" (hereinafter referred to as the "Building"), together with two (2) other office buildings (the "Adjacent Buildings") surrounding parking areas and driveways (collectively called the "Parking Facilities") and curbs and sidewalks all as located on the Site Plan attached hereto as Exhibit "B". The Land, along with the Building, Adjacent Buildings, Parking Facilities and all other improvements presently or hereafter located upon the Land, are hereinafter collectively referred to as the "Property". Landlord agrees that the aggregate square footage of the Building and Adjacent Buildings shall not exceed One Hundred Twenty-Five (125,000) square feet subject to the expansion provision contained in Paragraph 47. B. Landlord, for the term and subject to the provisions and conditions hereof, shall lease to Tenant, and Tenant shall accept from Landlord, certain space more particularly described by the cross-hatched area on the floor plans annexed hereto as Exhibit "C", which for all purposes hereof shall be deemed to contain Ninety Thousand Five Hundred (90,500) square feet consisting of all of the second through fourth (2nd - 4th) floors and a portion of the first floor of the Building, (the "Demised Premises"), together with an exclusive license for the duration of the term of the Lease to use the parking spaces (the "Parking Spaces") described in the Parking Space Schedule attached hereto as Exhibit "D", for parking of the passenger vehicles and service vans of Tenant and Tenant's invitees and employees and for no other purpose. Upon the Leasehold Improvements Completion Date as hereinafter defined, Landlord and Tenant shall promptly execute a revision to the Referenced Data containing the actual square footage (which square footage of the Demised Premises shall be the Building Area less 1,500 square feet for which Tenant shall not be obligated to pay Rent and less the portion of the Building not leased by Tenant pursuant to its Expansion and Contraction Rights as defined below, which calculation shall be subject to the reasonable verification of Tenant's architect) the actual Rent to be paid hereunder and the actual Tenant Improvement Allowance (as hereafter defined). The revised Referenced Data shall be incorporated into this Lease automatically upon execution by the Parties. Tenant shall have the right to increase the square footage of the Demised Premises by any amount up to the entire Building Area, or decrease the square footage of the Demised Premises on the first floor of the south portion of the Building by any amount up to 8,677 square feet (the "Expansion and Contraction Rights"). Tenant shall be entitled to exercise its Expansion and Contraction Rights up until such time as Tenant has provided Landlord with its Preliminary Interior Plans (as defined in Paragraph 3.A.) pursuant to Paragraph 3.A. If Tenant elects to change the square footage of the Demised Premises, then in such event, the Annual Rent, Tenant's Proportionate Share, the amount of the Tenant Improvement Allowance (as hereafter defined), and the actual square footage of the Demised Premises shall be modified upon the Leasehold Improvements Completion Date. Any space in the Building which is not leased by Tenant ("Remaining 2 3 Space") shall be on the first floor of the south portion of the Building in a reasonably leasable configuration. Tenant agrees that Landlord may access any such Remaining Space through Tenant's lobby at no expense to Landlord, or its other tenants, except for the cost of any hallway required to be constructed by Landlord to access the Remaining Space. Tenant shall have the right to approve the location, size and appearance of any such hallway, which approval shall not be unreasonably withheld. No portion of any hallway required to access the Remaining Space shall be included in the Demised Premises. If the area of the Remaining Space is more than 3,500 square feet, then the area of the lobby for which Tenant is paying Rent shall be reduced in proportion to the relative square footages of the Remaining Space and the Demised Premises to account for the shared use of the lobby. For example, if the area of the Remaining Space is 4,000 square feet, the area of the Demised Premises is 90,956 square feet, the Building Area is 94,956 square feet and the area of the lobby is 1,728 square feet, then the portion of the lobby for which Tenant shall not pay Rent will be 72.79 square feet (4,000/94,956 x 1,728 = 72.79). C. The Demised Premises shall be used for general business and office purposes, including, but not limited to conference and computer facilities, employee kitchen and lounge facilities, and any other legally permitted uses under applicable laws, regulations and restrictions recorded among the Public Records of Palm Beach County as of the date hereof, or as hereafter consented to or created by Tenant and for no other purposes. D. The use and occupation by Tenant of the Demised Premises shall include the non-exclusive use (except for the exclusive parking spaces assigned to Tenant pursuant to the Parking Space schedule), in common with other tenants of the Building of the common facilities, employees' parking areas, service roads, loading facilities, sidewalks and customer car parking areas (collectively the "Common Areas") as such Common Areas now exist or as such Common Areas may hereafter be constructed, and other facilities as may be designated from time to time by Landlord, subject however to the terms and conditions of this agreement and to the Rules and Regulations (as hereafter defined) for the use thereof as prescribed from time to time by Landlord. 2. Term. A. This Lease shall be effective upon execution by Landlord and Tenant and the term of this Lease shall commence on the Rental Commencement Date and end at 12:00 midnight on the last day of the month in which the fifteenth (15th) anniversary of the Rental Commencement Date occurs, unless sooner terminated as herein provided. The "Rental Commencement Date", shall be February 15, 1996, provided that Landlord has "delivered" the Demised Premises over to Tenant for the installation of Tenant's furniture and systems on or before January 16, 1996 (the "Leasehold Improvements Completion Date"). For the purposes of this Paragraph 2, the term "delivered" or "delivery of the Demised Premises", shall mean that possession of the Demised Premises has been turned over to Tenant ready for the installation of Tenant's furniture and systems with (1) at least one elevator servicing the Demised Premises available for use by Tenant; (2) reasonable access and reasonable facilities necessary for the conduct of Tenant's business in the Demised Premises, including, corridors, elevators, stairways, toilets, heating, ventilating, air conditioning, water, plumbing, public area lighting and electrical power facilities, all properly installed in accordance with all applicable building codes and in good working order; (3) all facilities serving the Building and passing through the Demised Premises shall have been completed; (4) the exterior of the Building shall be substantially completed and enclosed, including all windows with the remaining work to be done in the Building to be of such a nature so as to not materially interfere with Tenant's installation of its furniture and systems, 3 4 and, upon completion thereof, its normal use and occupancy of the Demised Premises for the conduct of its business. Landlord and Tenant acknowledge that, subject to Landlord meeting the foregoing conditions with respect to delivery of the Demised Premises, Landlord may be working on completing the Demises Premises, Building and Parking Facilities between January 16, 1996 and February 15, 1996, provided that by February 15, 1996, in addition to all of the foregoing conditions with respect to delivery of the Demised Premises, Landlord shall have obtained all required governmental approvals and inspections which are necessary, when taken together with the work to be performed by Tenant, to allow Tenant to lawfully occupy the Demised Premises and Landlord shall have complied with all legal requirements which are necessary for Tenant to use the Demised Premises for the conduct of its business (provided Tenant applies for and obtains its occupational licenses from the appropriate authorities). The determination as to whether or not the Demised Premises have been "delivered" as defined above shall be made jointly by Tenant's architect and the architect of record who prepared and sealed the Interior Plans and Specifications after consultation and a joint inspection of the Building using their reasonable judgment. If Landlord delivers the Demised Premises to Tenant for the installation of Tenant's furniture and systems after January 16, 1996, or if Landlord fails to complete before February 15, 1996, any work being performed after January 15, 1996, as described above the Rental Commencement Date shall be that day which is thirty (30) days after Landlord has delivered the Demised Premises to Tenant ready for the installation of Tenant's furniture and systems or completed any of Landlord's remaining work as applicable. If Tenant occupies any portion of the Demised Premises for purposes of conducting its business prior to the date which would otherwise be calculated to be the Rental Commencement Date pursuant to this paragraph, Tenant shall immediately commence paying Rent on the portion of the Demised Premises so occupied. If Catalfumo Construction, Inc. performs the Leasehold Improvements and Landlord fails to deliver the Building and Demised Premises in the condition required above by January 16, 1996, Landlord shall provide Tenant with two (2) days of Rent abatement for every day of delay, said Rent abatement to commence on the Rental Commencement Date. B. If Tenant elects to have a contractor other than Catalfumo Construction, Inc. construct the Leasehold Improvements, Rent shall be payable commencing on February 15, 1996, regardless of whether or not the Leasehold Improvements are completed or whether or not Tenant has occupied the Demised Premises, provided that Landlord has turned over the first and second floors of the Building to Tenant ready for the Tenant's selected contractor to immediately commence construction of Tenant's Leasehold Improvements on or before October 15, 1995 and the balance of the Demised Premises by November 15, 1995 (respectively, the "Core Building Completion Dates"). If Tenant elects to have a contractor other than Catalfumo Construction, Inc. construct the Leasehold Improvements and Landlord fails to deliver the Completed Core Building (as hereinafter defined) to Tenant ready for Tenant's selected contractor to commence work by November 15, 1995, the Rental Commencement Date shall be that date which is ninety (90) days after Landlord has delivered the Completed Core Building and Tenant shall be provided with two (2) days of Rent abatement for every day of delay with said abatement to commence on the Rental Commencement Date. The term "Completed Core Building" shall mean that Landlord has completed the core and shell and the remainder of the Building to the extent necessary such that Tenant can, based upon reasonable joint determination of Landlord's and Tenant's architects, arrived at after consultation and a joint inspection of the Building, commence and carry on the Leasehold Improvements (as defined in Paragraph 3.A.), using all necessary trades, including non-union laborers and contractors; provided, however, that in no event shall the Core Building Completion Date be deemed to have occurred until: (1) temporary power is available to each floor; (2) the portion of the Demised Premises to be turned over is water 4 5 tight; (3) Tenant and its agents have safe access to the applicable portion of the Demised Premises for themselves, their employees and invitees and, given consideration to ongoing construction activities, such access is reasonably clear, convenient and sufficient to permit Tenant to commence and carry on the work on the Leasehold Improvements in accordance with good construction practices. Within 10 days of the Core Building Completion Date, Tenant shall walk through the Building and prepare a "punch list" of items which are incomplete or do not comply with the Building Plans and Specifications. C. In no event shall Rent commence to be due unless there is available to the Demised Premises: (1) required utility services, (2) elevator service servicing the Demised Premises and (3) the completion of the parking spaces serving the Demised Premises. D. Anything in Paragraph 2.A. and B. to the contrary notwithstanding, if Landlord fails to perform by the Core Building or Leasehold Improvements Completion Dates as applicable and such failure was in fact caused by any of the following, Rent shall commence as if the delay had not occurred and the deadline dates for the delivery of the Completed Core Building or Leasehold Improvements, as applicable shall be extended by the number of days of delay, provided Landlord shall have given Tenant prompt written notice of any delays which may be caused by Tenant as provided in Paragraph 3.A.: (1) material changes in the work to be performed by Landlord in readying the Demised Premises for Tenant's occupancy, which are requested by Tenant after approval of the Interior Plans and Specifications for the Leasehold Improvements (as those terms are defined in Paragraph 3 hereof); or (2) any failure by Tenant, to furnish any required plan, information (including, without limitation, any material, furnishings, equipment, color or other selection) approval or consent within the required period of time; or (3) the performance or non-performance of any work or activity in the Demised Premises by Tenant or any of its employees, agents or contractors. E. If Landlord has not delivered the Demised Premises to Tenant by April 15, 1996, if Catalfumo Construction, Inc. is performing the Leasehold Improvements, or if Catalfumo Construction, Inc. is not performing the Leasehold Improvements and Landlord has not delivered the Completed Core Building to Tenant ready for Tenant's selected contractor to commence the Leasehold Improvements as described in Paragraph 2. by February 15, 1996, then, and only then, Tenant shall be entitled to terminate this Lease by providing written notice of its election within fifteen (15) days thereafter, failing which, Tenant shall be deemed to have elected not to terminate this Lease, provided however, any election by Tenant not to terminate this Lease pursuant to this Paragraph 2.E., shall not be deemed a waiver or modification of Tenant's right to receive the Rent Abatement provided above or any other right or remedy available to Tenant by reason of such failure by Landlord. F. Upon delivery of the Demised Premises to Tenant for the installation of Tenant's furniture and systems it shall be presumed that all work theretofore performed by or on behalf of Landlord was satisfactorily performed in accordance with and meeting the requirements of this Lease, excepting any items covered by Landlord's construction warranty, punch list items or latent defects in work performed by Catalfumo Construction, Inc. Tenant shall provide Landlord with a "Punch List" of items, which are incomplete or do not comply with the Interior Plans and Specifications (as hereinafter defined) as soon as practicable 5 6 after Tenant takes possession of the Demised Premises, but in any event, prior to sixty (60) days from the date of possession. G. When the Rental Commencement Date has been established, if the Rental Commencement Date is different from that presently set forth in the Referenced Data, Landlord and Tenant shall execute a revision to the Referenced Data setting forth the actual Rental Commencement Date and the actual Expiration Date. H. Landlord shall obtain a building permit from the City of Palm Beach Gardens for the construction of the Building by April 30, 1995. On or before July 15, 1995, Landlord will send Tenant a notice confirming that the Core Building Completion Dates are October 15, 1995, for the first two floors and November 15, 1995 for the remainder of the Building, or specifying that the Core Building Completion Dates will be delayed beyond such dates. In the latter event, Landlord will notify Tenant at least sixty (60) days prior to the new dates anticipated as the Core Building Completion Date. In the event Landlord fails to send the required notice on or before July 15, 1995, then Landlord shall be deemed to have confirmed the Core Building Completion Dates set forth herein. Landlord agrees to update previous notices to Tenant as changing circumstances may require. These notices shall be given to facilitate Tenant's scheduling only and Landlord shall have no liability for the failure to give said notices or for the inaccuracy of said notices beyond the specific rights and remedies set forth in this Paragraph 2. From and after the date hereof until the second of the Core Building Completion Dates (at which time Tenant shall have complete access to the Demised Premises), Tenant and its agents shall be permitted to inspect the progress of Landlord's work on the Building at reasonable times on reasonable notice to Landlord's designee (until further notice Landlord's designee shall be Daniel S. Catalfumo). Any such inspection shall be made at Tenant's sole risk and expense. Upon request of Tenant, Landlord shall provide Tenant with oral reports on the progress of Landlord's work and copies of Landlord's construction schedule and the updates thereof. I. For purposes of Tenant's entitlement to the Rent abatement in the event the Completed Core Building or the Demised Premises (as applicable) are not delivered on the dates specified in Sub-Paragraphs 2(A) and 2(B) above, Landlord hereby waives any right to assert Force Majeure (pursuant to Paragraph 37), impossibility of performance or any other similar basis, in law or equity, to relieve Landlord of its obligation to grant Tenant the Rent abatement as aforesaid. 3. Construction of Building and Leasehold Improvements. A. Upon execution of the Lease, Landlord shall construct the Building in accordance with architectural and engineering drawings and specifications (the "Building Plans and Specifications") prepared by Landlord's architect and attached hereto as Exhibit "E". No material alterations or substitutions of materials from the Buildings Plans and Specifications shall be made by Landlord without the prior written consent of Tenant which shall not be unreasonably withheld or delayed. In addition, Landlord has provided Tenant with copies of the elevations and Site Plan for the Adjacent Buildings, prepared by Oliver-Glidden & Partners dated March 14, 1995, which have been reviewed and approved by Tenant. If Tenant requests any changes to the Building Plans and Specifications or the Site Plan for the Property which require Landlord to seek amendments or reapproval by the City of Palm Beach Gardens, or would delay the development of the Property or construction of the Building and Demised Premises, Landlord shall be granted a day for day extension of the dates to deliver the Demised Premises or the Completed Core Building as applicable as set forth in paragraph 2 above. Upon receipt of a request from Tenant for any such changes causing a delay, Landlord shall provide Tenant with a written notice of the delay which will be caused by the change and Tenant shall then elect within three (3) business days whether or not to proceed with the change. If Tenant requests any change which would cause an increase in the cost of 6 7 construction of the Building or development of the Property, Tenant shall be required to pay the actual cost of said change without mark-up for profit (but with a mark-up for overhead) upon receipt of Landlord's invoice therefor. Landlord shall provide Tenant with written notice of the increase in cost and Tenant shall have three (3) business days to elect whether or not to proceed with the change. Tenant shall have a space plan, interior design plan, finish schedules and architectural sketches (the "Preliminary Interior Plans") of the proposed Leasehold Improvements to the Demised Premises prepared and submitted to Landlord on or before July 1, 1995, said Preliminary Interior Plans to include the items set forth on Exhibit "F" be complete and ready for Landlord's, architect and engineer to prepare the Interior Plans and Specifications (as defined below). Landlord shall provide Tenant with an allowance of $.83 per square foot of the Demised Premises to be used by Tenant to defray a portion of the costs for preparation of the Preliminary Interior Plans. This allowance shall be payable to Tenant as and when Tenant incurs architectural and engineering costs in the preparation of the Preliminary Interior Plans. Within forty-five (45) days of receipt of the Preliminary Interior Plans, Landlord shall have permit sets of working architectural and engineering drawings in sufficient detail for processing permits and bidding purposes prepared in accordance with the Preliminary Interior Plans (the "Interior Plans and Specifications"). The Interior Plans and Specifications shall be subject to Tenant's architect's reasonable review and approval. Tenant's architect shall review and approve or disapprove the Interior Plans and Specifications within Ten (10) days of receipt of same from Landlord and any revisions to the Interior Plans and Specifications within three (3) days of receipt of same from Landlord. The improvements to be made to the Demised Premises pursuant to the Interior Plans and Specifications shall be referred to herein as the "Leasehold Improvements." Upon completion of the Interior Plans and Specifications, Landlord and Tenant shall mutually select three (3) general contractors, including Catalfumo Construction, Inc., to bid on the construction of the Leasehold Improvements. Tenant shall have the right to select the general contractor to complete the construction of the Leasehold Improvements. If Tenant selects Catalfumo Construction, Inc., Tenant shall notify Landlord within thirty (30) days of receipt of the Interior Plans and Specifications. If Tenant selects a contractor other than Catalfumo Construction, Inc., Landlord will provide, at no additional cost to Tenant, all reasonable building services during construction of the Leasehold Improvements on an as available basis, including use of elevators, delivery docks and parking to aid in the construction of the Leasehold Improvements. Landlord shall not charge any administration or management fees with respect to the construction of the Leasehold Improvements. If Landlord has previously purchased and stored building materials to be used for the Leasehold Improvements, which are in excess of Landlord's requirements for construction of the Building, Tenant shall be permitted to purchase said materials at Landlord's original out-of-pocket cost with no additional mark-up by Landlord or Landlord's contractor for profit, overhead or supervision with respect to said excess building materials. B. Landlord shall provide Tenant with an improvement allowance (the "Improvement Allowance"), which shall be applied first to the cost of obtaining required permits for, and completing the construction of, the Leasehold Improvements, with any remaining portions of the Improvement Allowance to be applied to Tenant's costs of relocation into the Demised Premises,including, but not limited to, telephone and computer cabling, furniture, security systems, moving costs, or any other costs and expenses as Tenant may elect. The Improvement Allowance shall be in an amount equal to Thirty-Five and 58/100 Dollars ($35.58) multiplied times the square footage (as determined in accordance with Paragraph 1.B.) shown in the Interior Plans and Specifications approved by Tenant and Landlord. Landlord shall disburse the Improvement Allowance toward the Leasehold Improvements in accordance with the following conditions: (i) prior to commencement of any work, Landlord and Tenant shall have approved the Interior Plans and Specifications for such work as provided in Paragraph 3.A. above; (ii) the 7 8 Interior Plans and Specifications shall meet all requirements of Palm Beach County, Florida and other local governmental authorities having jurisdiction over the work; (iii) disbursements shall be made at least once in each month by Landlord in an amount which, when added to all previous amounts paid hereunder, shall not exceed 90% of the cost of the work performed with respect to "hard" costs (95% once not less than 50% of a particular contract has been completed and 100% once all of the work under a particular contract has been completed, provided Landlord's construction lender approves this disbursement procedure) and 100% of the cost of the work performed with respect to all other costs and materials purchased no later than the 10th day of the month, provided Landlord shall have received on or before the 20th day of the preceding month an AIA Form G702/3 from Tenant's architect (subject to verification of same by Landlord and Landlord's construction lender), containing a certification of (a) the stage of completion, (b) the estimated cost of completion, (c) the cost of the work and materials incorporated in the Demised Premises to date, and (d) an estimate of the cost of all remaining work and materials and of the performance of the work in accordance with the Interior Plans and Specifications for the Leasehold Improvements. In the event the above certification is received after the 20th day of the month, the disbursement with respect thereto shall be made concurrently with Landlord's next draw request to its lender but in any event, on or before the 30th day of the following month; (iv) each request for disbursement shall be accompanied by waivers of lien with respect to work on the Building paid for out of prior disbursements signed by, as appropriate, all architects, engineers, contractors, mechanics and designers to be paid out of the proceeds thereof, or with respect to which a reimbursement of payment is being submitted, provided that if any such waiver(s) cannot be obtained, Landlord and Landlord's construction lender will accept Tenant's indemnification with respect thereto; and to the extent that the Improvement Allowance is not exhausted upon completion of the work in accordance with the Interior Plans and Specifications, Landlord shall, at Tenant's request, disburse the balance of the Improvement Allowance to Tenant, and Tenant shall not thereafter be required to account to Landlord for the balance of the Improvement Allowance so disbursed to Tenant. Tenant shall be responsible for the cost of the Leasehold Improvements and Tenant's costs of relocation, to the extent that they exceed the Thirty-Five Dollars ($35.00) per square foot Improvement Allowance. C. Intentionally Omitted. 4. Rent. A. Tenant shall pay as minimum rent for the Demised Premises the sum of One Million Seven Hundred Sixty-Four Thousand Seven Hundred Fifty and 00/100 ($1,764,750.00) annually which is Nineteen and 50/100 Dollars ($19.50) per square foot of area as determined in accordance with Paragraph 1.B. (the "Annual Rental"). Such Annual Rental shall be payable during the term hereof, in advance, in equal monthly installments,together with all sales, use or other Taxes based thereon (including, but not limited to the tax imposed by Florida Statutes 212.031), and any other state, federal or other governmental or quasi governmental tax, service tax, license fee or other imposition levied on the Rents received by Landlord, all of which shall collectively be referred to hereafter as "Sales Tax". The first monthly installment of Annual Rental shall be payable on the Rental Commencement Date and payment of monthly installments of Annual Rental shall continue to be payable on the first (1st) day of each successive month thereafter during the Term hereof. The monthly installments shall be One Hundred Forty-seven Thousand Sixty-two and 50/100 ($147,062.50) plus Sales Tax. B. In addition to the Annual Rental, Tenant shall, upon written notice from Landlord in accordance with Paragraph 5, pay any sums required to be paid by Tenant for any calendar year pursuant to Paragraph 5 together with applicable Sales Tax on all of the above and all other sums which are due to Landlord under the terms of this Lease (all such sums being hereinafter collectively referred to as "Additional Rent"). The Annual Rental and 8 9 Additional Rent are hereinafter sometimes collectively referred to as "Rent". C. If the Rental Commencement Date occurs on a day other than the first (lst) day of the month, Rent from the Rental Commencement Date until the first (lst) day of the following month shall be prorated (calculated on the basis of a thirty (30) day month) and shall be payable upon the Rental Commencement Date. D. All sums payable by Tenant under this Lease, whether or not stated to be Annual Rental or Additional Rent, shall be collectible by Landlord as Rent, and in the event of a default in payment thereof, Landlord shall have the same rights and remedies as for a failure to pay Annual Rental (without prejudice to any other right or remedy available therefor). E. If Landlord, at any time or times, shall accept said Rent after same shall become due and payable, such acceptance shall not excuse delay upon subsequent occasions, or constitute, or be construed as, a waiver of any of Landlord's rights hereunder. F. All Rent and other sums due to Landlord hereunder shall be payable without demand, deduction, set-off, or counterclaim (except for any right of set-off which may be expressly set forth in this Lease) at the office address of Landlord first above given, or at such other address as Landlord may designate, from time to time, by written notice to Tenant. 5. Tenant's Responsibility for Operating Expenses. A. For and with respect to each calendar year (and any portion thereof) during the term of this Lease (and any renewals or extensions thereof), after calendar year 1996, Tenant shall pay to Landlord, as Additional Rent, an amount equal to Tenant's Proportionate Share of the amount by which the amounts paid by Landlord for Taxes (as defined below), electric and insurance exceed $1.35, $1.50 and $.15 per square foot respectively (the "Excess Operating Expenses"). If at any time during the term of this Lease the amounts paid by Landlord for Taxes, electric or insurance for any calendar year are less than the base amounts set forth in the preceding sentence, then the Rent shall be reduced by the amount by which the actual cost for said expense item is less than the applicable base figure. In addition, Tenant shall not be required to pay any Excess Operating Expenses for Taxes which is are a direct result of a sale or transfer of Landlord's interest in the Building or Property, or the placement of a mortgage on the Building in excess of the then current market value of the Building. In such event, the base amount for Taxes set forth in this paragraph shall be increased by the amount of the increase in the Taxes caused by the sale, transfer or mortgage. Tenant's Proportionate Share of such Excess Operating Expenses shall be paid in accordance with the following procedure: Within 120 days after the end of each calendar year, Landlord shall furnish to Tenant a written statement (the "Expense Statement") setting forth the amount, if any, due from Tenant as a result of Excess Operating Expenses in the amounts paid by Landlord for Taxes, electric and insurance calculated pursuant to this Paragraph. Tenant's Proportionate Share of any such Excess Operating Expenses shall be paid by Tenant with thirty (30) days of receipt of the Expense Statement. For the purposes of this Paragraph, the term "Taxes" shall be defined as all real estate taxes and assessments, ad valorem or otherwise, transit Taxes, and any other federal, state, city, county or other local governmental or quasi-governmental charges or charges by any school, drainage, waste management, or other special improvement or service district, or other public entity granted the power to assess the Property whether directly on the ad valorem tax bill or otherwise, (but not including income taxes or any other Taxes imposed upon or measured by Landlord's income or profits, unless the same shall be imposed in lieu of real estate taxes or limited solely to income from real property), general or special, ordinary or extraordinary, foreseen or unforeseen, which may now or hereafter be levied, assessed or 9 10 imposed upon the Property or with respect to the ownership thereof, excluding the Taxes assessed against the Adjacent Buildings and excluding a prorated portion of the Taxes assessed against the Land which shall be determined by multiplying the total Taxes assessed against the Land by a fraction, the numerator of which shall be the number of gross square feet contained in the Adjacent Buildings only and the denominator of which shall be the number of gross square feet contained in all of the buildings located on the Land or if the Adjacent Buildings are not constructed, then the denominator shall be one hundred twenty-five thousand (125,000) square feet plus the area of any square footage, if any, contained in the Proposed Building Expansion as defined in Paragraph 47. Taxes shall also include any personal property taxes imposed upon the furniture, fixtures, machinery, equipment, apparatus, systems and appurtenances in proportion to the extent used in connection with the Building for the operation thereof. If, due to a future change in the method of taxation, any franchise, income, profit or other tax, however designated, shall be levied, assessed or imposed in substitution, in whole or in part, for (or in lieu of) any tax which would otherwise be included within the definition of Taxes, such other tax shall be deemed to be included within Taxes as defined herein, Taxes shall also include all of Landlord's expenses, including, but not limited to, attorney's fees incurred by Landlord in any effort to minimize Taxes; provided, however, that Landlord shall have no obligation to undertake any contest, appeal or other procedure to minimize Taxes. Taxes shall be calculated taking advantage, of the maximum possible discount. Tenant shall have the right (but not the obligation) to contest the amount or validity of the Taxes which the Tenant is required to pay hereunder, and for that purpose, the Tenant shall have the right to file in the name of the Landlord all such protests or petitions and to institute and prosecute such proceedings as the Tenant may deem necessary for the purpose of such contest. Except as hereinafter provided, in the event a refund of Taxes previously paid is obtained as a result of such contest by Tenant, Tenant shall pay the cost of prosecuting such contest. If payment of some or all of the Taxes is necessary in order to avoid penalties or interest accruing thereon, Tenant shall pay its proportionate share of such Taxes, and Landlord shall pay the balance thereof prior to such protest or proceeding. Any refund of any Taxes relating to periods during the Term of the Lease shall be applied first to reimburse or pay actual expenses incurred in connection with the tax contest or appeal and next to Landlord and Tenant in proportion to the amount of Taxes each has previously paid for the tax periods on which the refund is based. Tenant shall be entitled to audit the items included in the Additional Rent for a period of two (2) years after the end of each calendar year. Landlord shall maintain and make available to Tenant upon reasonable notice, the supporting information used to calculate the Additional Rent. Landlord shall either credit any overpayments discovered by Tenant's audit to the next payments of Rent coming due under the Lease, or if no further payments of Rent are due under the Lease, Landlord shall promptly repay the overpayment to Tenant. Notwithstanding anything to the contrary contained hereinabove, Taxes shall not include any maintenance fees or regular or special assessments imposed by the RCA Boulevard Drainage Association, Inc. or otherwise pursuant to that certain Declaration of Protective Covenants, Restrictions, Reservations and Servitude recorded in ORB 7105 at Page 1765 of the Public Records of Palm Beach County as the same may be hereafter amended. 6. Security Deposit. INTENTIONALLY OMITTED. 7. Tenant's Covenants. Tenant agrees, on behalf of itself, its employees and agents, that it shall: A. Comply at all times with any and all Federal, state, and local statutes, regulations, ordinances and other requirements of any applicable public authorities relating to its use and occupancy of the Demised Premises and as provided in Paragraph 52 hereof. 10 11 B. Provide Landlord access to the Demised Premises at all reasonable times during normal business hours, without charge or diminution of rent, to enable Landlord: (1) to examine the same and to make such repairs, additions and alterations as Landlord may be permitted to make hereunder to the Demised Premises or any other portion of the Property or any part thereof; and (2) upon reasonable notice, to show the Demised Premises to any prospective mortgagees and purchasers, and, during the twelve (12) months prior to expiration of the term of this Lease or any renewal term, to prospective tenants. Landlord shall give Tenant reasonable prior notice of its need for access to the Demised Premises, except in cases of emergency, and shall be accompanied at all times by Tenant's representatives. Landlord shall use its best efforts to minimize any disruption of Tenant's operations. Notwithstanding anything to the contrary contained herein, Landlord shall not enter any of the Demised Premises in such a fashion that Landlord's entry would jeopardize Tenant's governmental security clearance status required to conduct its operations. C. Tenant shall commit no waste in or upon the Demised Premises. D. Upon the termination of this Lease for any reason whatsoever, remove Tenant's goods, trade fixtures and effects and those of any other person claiming under Tenant, and quit and deliver up the Demised Premises to Landlord peaceably and quietly in as good order and condition as at the inception of the term of this Lease or as the same hereafter may be improved by Landlord or Tenant, reasonable use and wear thereof, damage from fire and other insured casualty and repairs which are Landlord's obligation excepted. Goods and effects not removed by Tenant at the termination of this Lease, however terminated, upon five (5) days written notice from Landlord shall be considered abandoned and Landlord may dispose of and/or store the same as it deems expedient, the reasonable cost thereof to be charged to Tenant. E. Not place signs on the Demised Premises except in accordance with sign criteria approved by Landlord and the City of Palm Beach Gardens, and in accordance with the provisions of Paragraph 42 of this Lease. F. Not overload, damage or deface the Demised Premises or do any act which might make void or voidable any insurance on the Demised Premises of the Building and/or the Property or which may render an increased or extra premium payable for insurance (and without prejudice to any right or remedy of Landlord regarding this Subparagraph, Landlord shall have the right to collect from Tenant, upon demand, any such increased or extra premium). G. Not make any alteration of or addition to the Demised Premises without the prior written approval of Landlord, which shall not be unreasonably withheld or delayed. No consent shall be required from Landlord for alterations, the aggregate cost of which do not exceed $10,000, provided that such alterations are not structural or do not result in material modifications to the Buildings main systems (i.e. HVAC, electrical or plumbing) as certified by Landlord's architect. All alterations and additions to the Demised Premises shall be performed in accordance with plans and specifications therefore submitted to Landlord whether or not Landlord's consent is required and approved by Landlord if Landlord's consent is required, in a good and workmanlike manner and in conformity with all building codes, laws, regulations, rules, ordinances and other requirements of all governmental or quasi-governmental authorities having jurisdiction. H. Notwithstanding anything to the contrary contained herein, on the termination of the Lease, Tenant shall not be required to restore the Demised Premises to their condition existing immediately prior to the making of the Leasehold Improvements, nor shall Tenant be required to restore the Demised Premises to their condition prior to the making of any future alterations and additions to the Demised Premises in accordance with the terms of the Lease, unless Landlord advises Tenant in 11 12 writing of such required restoration at the time of Landlord's approval of the plans submitted in connection with such future alterations and additions. All counters, railings, movable partitions, lighting fixtures, special cabinet and other wood work, doors machines and equipment which are installed in the Demised Premises by or for the account of Tenant, and not paid for by Landlord, and which can be removed without permanent structural damage to the Building, and all furniture, furnishings and other articles of personal property owned by Tenant and located in the Demised Premises (all of which are herein called "Tenant's Property") shall be and remain the property of Tenant, and may be removed by it at any time during the term of this Lease. However, if any of Tenant's Property is removed, Tenant shall repair or pay the cost of repairing any damage to the Demised Premises or the Building resulting from such removal. During the term of the Lease, Tenant may finance or refinance the purchase price of all or any part of its furnishings and equipment and in connection therewith may grant security interests in and liens upon such items, provided that no liens may be granted or placed upon Landlord's fee interest in the Building or Property. The Landlord agrees to execute and deliver such disclaimers of interest or waivers of lien as the Tenant or its respective lenders (including finance lessors), may reasonably request with respect to such furnishings and equipment in connection with such financing or refinancing. I. Not bring any flammable, explosive or dangerous material or article onto the Property in violation of any applicable law, regulation, ordinance or to the extent that a common law nuisance would result. Landlord acknowledges that Tenant shall be permitted to keep firearms in the Building. J. Intentionally Omitted. K. Not bring safes, heavy files, or other heavy equipment into the Property in excess of the floor loads provided for in the Building Plans and Specifications. Tenant shall indemnify, defend and save Landlord harmless from any and all expenses and other damages, including attorney's fees, and costs, resulting from the use or installation by Tenant of heavy equipment in excess of the provided floor loads.. L. Not use, create, store, or permit any toxic or hazardous material anywhere on the Property in violation of applicable laws and regulations. Tenant shall not dispose of any toxic or other hazardous waste through the plumbing system or drainage system of the Building or the Property, and Tenant shall not violate any requirement of any governmental agency, with respect to waste disposal. Tenant shall indemnify, defend and hold Landlord harmless from any and all expenses and other damages, including attorney's fees and costs incurred by Landlord, as a result of the storage, handling or disposal of any hazardous materials or waste by Tenant in violation of applicable laws and regulations, which indemnification shall survive the expiration or earlier termination of this Lease. M. Immediately and at its expense, Tenant shall repair and restore any and all damages caused to the Demised Premises or the Building due to Tenant's improvements, installations, alterations, additions or other work conducted by Tenant within the Demised Premises, and Tenant shall restore the Building to the condition existing prior to improvement, installations, alterations, additions or other work conducted by Tenant within the Demised Premises. N. Comply with the Rules and Regulations (as hereinafter defined) as initially set forth on Exhibit "G" which is attached hereto and incorporated herein, and comply with such other reasonable rules and regulations as Landlord may establish, and from time to time amend, for the general safety, comfort and convenience of Landlord, occupants and tenants of the Building. 12 13 O. Not install or operate in the Demised Premises any electrically operated equipment or other machinery, including computers, which would overload the Buildings electrical system capacities or any plumbing fixtures, which would exceed the Buildings plumbing system capacity, both as set forth in the Building Plans and Specifications without first obtaining the prior written consent of Landlord. Tenant shall not install any equipment of any kind or nature whatsoever which would or might necessitate any changes, replacements or additions to the structural system, water system, plumbing system, heating system, air conditioning system or the electrical system servicing the Demised Premises or any other portion of the Building without the prior written consent of Landlord, and in the event such consent is granted, such replacements, changes or additions shall be paid for by Tenant. 8. Services. Landlord agrees that, throughout the term of the Lease and any extensions, it shall maintain and manage the Building and Property in a first class manner consistent with other Class A office buildings in Palm Beach County. In that regard, Landlord shall: A. Provide self service passenger elevator service to all floors in the Building above the ground floor. B. Provide Tenant with access to the Demised Premises 24 hours per day, 7 days a week, 365 days per year, except in case of an emergency, which causes Landlord to limit access to Tenant. C. Provide janitorial service after normal business hours to the Demised Premises and Common Areas in the Building and Parking Facilities Monday through Friday, as are customarily provided in first class office buildings in Palm Beach County, Florida. Janitorial services are to be provided as detailed in Cleaning Specifications Schedule attached as Exhibit "G". D. Subject to the provisions of Paragraphs 12 and 15 hereof, maintain, operate, repair and replace as necessary, the Building's plumbing, electrical and HVAC systems, the elevators and public portions of the Building, both exterior and interior, structural and non-structural, foreseen and unforeseen, including, without limitation, the base Building structure and roof. Landlord shall make any repairs to the Demised Premises covered by its construction warranties or caused or resulting from carelessness, omission, neglect or improper conduct of Landlord, its servants, agents, contractors, employees, invitees or licensees or a breach of Landlord's obligations under this Lease. Landlord shall be responsible for all repairs to the core areas within the Demised Premises and for all repairs and replacements to the Building and the Building systems which are not specifically set forth as the obligation of Tenant. In the event that any repair is required by reason of the negligent or willful acts of Tenant or its agents, employees or invitees, or of any other person entering the Building with Tenant's consent, express or implied, Landlord may upon fifteen (15) days written notice to Tenant, make such repair and add the cost thereof to the first installment of Rent which will thereafter become due. E. Furnish the Demised Premises and Common Areas of the Property with electric service for lighting and normal office use in accordance with the Building Plans and Specifications. Furnish the Demised Premises and Common Areas with heating or air conditioning during such hours as may be determined by Tenant so that the average temperature in the Demised Premises is 72 F+/- 2. F. Maintain and repair, at its cost and expense, in good working order and condition, the Demised Premises, including the plumbing, electrical, HVAC and other systems within the Demised Premises, with the exception of such items which are damaged by Tenant's negligence or the negligence of Tenant's agents, employees, contractors, or invitees. 13 14 G. Tenant acknowledges that Landlord does not warrant that any of the services referred to in this Paragraph 8 will be free from interruption from causes beyond the reasonable control of Landlord. If Landlord fails to provide any essential services or facilities for three (3) consecutive business days to the extent that all or a portion of the Demised Premises is rendered untenantable and Tenant cannot conduct its normal business in the Demised Premises or a portion thereof, then Rent shall be abated for the portion of the Demised Premises rendered untenantable retroactive to the first day that the service or facility was unavailable, provided that there shall be no abatement if the failure to provide service is as a result of an event of force majeure as defined in Paragraph 36. In such event, Tenant shall be entitled to expend any reasonable sums required to correct Landlord's failure and deduct the same from the next Rent coming due. H. Landlord shall manage and maintain the Building and Property in a first class fashion. If at any time during the term of the Lease, Tenant is dissatisfied with the management and/or maintenance of the Building and Property, and Tenant provides written notice of such dissatisfaction to Landlord, Landlord shall have fifteen (15) days to reasonably remedy the cause of Tenant's dissatisfaction. If Landlord fails to satisfy Tenant's reasonable concerns, Tenant shall so notify Landlord and Landlord shall be required to replace the management and/or service providers. Further, Tenant shall have the right at any time during the term of the Lease to contract separately to provide its own janitorial service. If Tenant elects this option, the applicable cost of the janitorial service for the Demised Premises, as then being paid by Landlord per the existing vendor contract or at the then prevailing market rate for similar janitorial services, whichever is greater, shall be deducted from the Rent being paid by Tenant. I. Provide tempered water and municipally provided cold water to the Demised Premises. 9. Subletting and Assigning. Tenant shall not assign, mortgage or otherwise transfer or encumber this Lease or any portion of Tenant's interest herein, or sublet all or any portion of the Demised Premises without first obtaining Landlord's prior written consent thereto, which shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Tenant, without Landlord's consent, shall be entitled to sublet the Demised Premises or assign in whole or in part, its rights under the Lease to any affiliate or subsidiary of Tenant or any parent of Tenant or any successor of Tenant resulting from a merger or consolidation of Tenant into any entity under the "Common Control" of Tenant. Should Tenant sublet or assign all or a portion of the Demised Premises for an amount greater than the Rent Tenant is paying, whether or not such assignee or subtenant is under the Common Control of Tenant, the excess shall be retained in full by Tenant. If Landlord consents to any assignment or subletting, such consent will not be deemed a consent to any further subletting or assignment. Duly attempted assignments, mortgages, subleases or other encumbrances of the Demised Premises in violation of this paragraph shall be null and void. If Landlord consents to any subletting or assignment, or if Landlord's consent is not required it shall nevertheless be a condition to the effectiveness thereof that a fully executed copy of the sublease or assignment be furnished to Landlord and that any assignee assume in writing all obligations of Tenant hereunder, including, without limitation, the obligation to only use the Demised Premises for the uses permitted hereunder. In the event of any subletting or assignment of the Demised Premises, whether or not Landlord's consent is required, Tenant shall remain liable for all of the obligations of Tenant set forth herein. For the purposes of this paragraph, "Common Control" shall be defined as the percentage of shares, or the voting rights to said shares, which control the making of major corporate decisions. 10. Indemnification. Tenant shall indemnify, defend and hold Landlord, its agents and employees, harmless from and against any 14 15 and all liability, claims, suits, demands, judgments, costs, damages, fines, interest and expenses (including reasonable attorneys' fees and disbursements) incurred or suffered by Landlord, its agents and employees, by reason of any breach, violation or nonperformance by Tenant, or its agents, employees, licensees, invitees or contractors of any covenant or provision of this Lease, or by reason of any damage to persons or property caused by moving property of or for Tenant in or out of the Building, or by the installation or removal of furniture or other property of or for Tenant or by reason of or arising out of the acts, omissions, negligence or improper conduct of Tenant, or its agents, employees, licensees, invitees or contractors in the preparation, alteration, use or occupancy of the Demised Premises. Landlord shall indemnify, defend and hold Tenant harmless from and against any and all liability, claims, suits, demands, judgments, costs, damages, fines, interest and expenses (including reasonable attorneys' fees and disbursements) incurred or suffered by Tenant by reason of any breach, violation or non-performance by Landlord, or its agents, employees or contractors, of any covenant or provision of this Lease, or by reason of or arising out of the acts, omissions, negligence, or improper conduct of Landlord, or its agents, employees, licensees, invitees or contractors in the preparation, alteration, repair or maintenance of the Building; provided, however, that such indemnification by Landlord shall not be enforceable against any mortgagee in possession of the Building prior to a foreclosure or other proceeding or process , whereby any such mortgagee may obtain fee title to the Building. Where applicable, the indemnifying party shall have the right, at the indemnifying party's own cost and expense, to resist or defend such action or proceeding in the indemnified party's name, if necessary, and by such attorneys as the indemnified party shall approve, which approval shall not be unreasonably withheld or delayed. 11. Insurance. A. Tenant, at its own cost and expense, shall obtain and maintain in full force and effect during the original term hereof, and any extensions or renewals, single limit public liability and property damage insurance in an amount at least equal to Five Million Dollars ($5,000,000.00) or such other amounts as Landlord's lender may reasonably require from time to time upon thirty (30) days prior written notice. B. Landlord shall at all times during the term of the Lease and extensions, maintain in effect a policy or policies of insurance covering the Building and Property and providing protection against all perils included within the classification "fire and extended coverage", business interruption/rent loss insurance for a period not to exceed eighteen (18) months and any other commercially reasonable coverages for similar buildings in the amounts as reasonably required by Landlord's lender. In any event, Landlord agrees to carry with companies reasonably acceptable to Tenant, during the Term hereof, all risk property insurance ("Landlord's Property Insurance") covering fire and extended coverage, vandalism and malicious mischief, sprinkler leakage and all other perils of direct physical loss or damage insuring the improvements and betterments located in the Building, including the Demised Premises and all appurtenances thereto (excluding Tenant's Property) for the full replacement value thereof. If the Building is within a federally designated flood plain, Landlord shall also carry flood insurance in the maximum amount available, not to exceed the full insurable value of the Building, including the Demised Premises. During construction of the Building, Landlord shall carry, at its own expense, Builder's Risk Insurance in appropriate amounts. Landlord, upon request, shall furnish Tenant certificates of the insurance required of Landlord pursuant to this Paragraph. In addition, Landlord shall maintain on the Building and Property, public liability and property damage insurance in amounts equal to those required to be maintained by Tenant as set forth in Paragraph 11.A. C. Tenant agrees to carry all risk insurance covering Tenant's fixtures, furnishings, wall covering, carpeting, drapes, 15 16 equipment and all other items of personal property of Tenant located on or within the Demised Premises in amounts as may be determined by Tenant ("Tenant's Property Insurance"). Landlord agrees it shall not have any right, title or interest in and to Tenant's Property Insurance or any proceeds therefrom. D. Except for Tenant's Property Insurance, all policies of insurance described above shall name Landlord and any mortgagee of Landlord as named insureds, and shall include an endorsement providing that the policies will not be cancelled or amended until after thirty (30) days' prior notice to Landlord. All such policies of insurance shall be issued by a financially responsible company or companies satisfactory to Landlord and authorized to issue such policy or policies, and licensed to do business in the State of Florida. Tenant shall deposit with Landlord duplicate originals of such insurance on or prior to the Rental Commencement Date, together with evidence of paid-up premiums, and shall deposit with Landlord renewals thereof at least fifteen (15) days prior to expiration of any such policies. 12. Fire or Other Casualty. 12.01 If the Building or the Demised Premises shall be partially or totally damaged or destroyed by fire or other cause (and if this Lease shall not have been terminated as in this Paragraph 12 hereinafter provided), Landlord shall promptly repair the damage and restore and rebuild the Building and the Demised Premises to substantially the same condition as existed prior to the fire or other casualty, at its expense (without limiting the rights of Landlord under any other provisions of this Lease), after notice to it of the damage or destruction; provided, however, that Landlord shall not be required to repair or replace any of Tenant's Property. 12.02 (a) if the Building or the Demised Premises shall be partially damaged or partially destroyed by fire or other cause, then the rents payable hereunder shall be abated to the extent that the Demised Premises shall have been rendered untenantable or rendered inaccessible for the period from the date of such damage or destruction to the date the damage shall be repaired or restored. In the event that so much of the Demised Premises shall be damaged, destroyed or rendered inaccessible that Tenant is unable to conduct its business in a reasonable manner in the undamaged or non-destroyed portion of the Demised Premises, then, if Tenant moves out of the entire Demised Premises until the restoration work has been completed, the rent therefor shall be fully abated. (b) if the Demised Premises or a major part thereof shall be totally (which shall be deemed to include substantially totally) damaged or destroyed or rendered completely (which shall be deemed to include substantially completely) untenantable or inaccessible on account of fire or other cause, then the rents shall abate as of the date of the damage or destruction and until Landlord shall repair, restore and rebuild the Demised Premises including access thereto, provided, however, that should Tenant reoccupy a portion of the Demised Premises for the conduct of business during the period the restoration work is taking place and prior to the date that the same are made completely tenantable, rents allocable to such portion shall be payable by Tenant from the date of such occupancy. (c) if the Demised Premises or a major part thereof shall be totally (which shall be deemed to include substantially totally) damaged or destroyed or rendered completely (which shall be deemed to include substantially completely) untenantable on account of fire or other cause, then within ninety (90) days after such damage or destruction to the Demised Premises, Landlord shall deliver to Tenant a statement prepared by a reputable contractor setting forth such contractor's estimate as to the time required to repair such damage. If the estimated time period exceeds 180 days from the date of such statement, Tenant may elect to terminate this Lease by notice to Landlord not later than thirty (30) days following receipt of such statement. If Tenant 16 17 makes such election, the term of this Lease shall expire upon the thirtieth (30th) day after notice of such election is given by Tenant, and Tenant shall vacate the Demised Premises and surrender same to Landlord in accordance with the provisions of Paragraph 7 hereof. If Tenant shall not have elected to terminate this Lease pursuant to this Section 12.02(c) (or is not entitled to terminate this Lease pursuant to this Paragraph 12) and such repairs are not made by Landlord within two (2) months after the expiration of the period estimated for effecting such repairs, then Tenant may elect to terminate this Lease by giving notice to Landlord not later than sixty (60) days following expiration of the aforesaid restoration period. If Tenant makes such election, the term of this Lease shall expire on the thirtieth (30th) day after notice of such election is given by Tenant, and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of Paragraph 7 hereof. 12.03 If the Building shall be so damaged or destroyed by fire or other cause (whether or not the Demised Premises are damaged or destroyed) as to require a reasonably estimated expenditure to restore of more than 25% of the full insurable value of the Building immediately prior to the casualty, then Landlord may terminate this Lease by giving Tenant notice to such effect within ninety (90) days after the date of the casualty. Notwithstanding the foregoing, Landlord may not exercise such option unless it terminates, at the same time, all leases of space in the Building. In such event, this Lease shall terminate on the thirtieth (30th) day after the giving of such notice of termination and the rents payable hereunder shall be apportioned as of the date of such termination with respect to the undamaged portion of the Demised Premises and as of the date of damage with respect to the damaged portion of the Demised Premises (except as to those portions which were reoccupied by Tenant). Within ninety (90) days after such damage or destruction to the Demised Premises, Landlord shall deliver to Tenant a statement prepared by a reputable contractor setting forth such contractor's estimate as to the time required to repair such damage. If the estimated time period exceeds 180 days from the date of such statement or if the remaining unexpired term of the Lease is less than two (2) years, Tenant may elect to terminate this Lease by notice to Landlord not later than sixty (60) days following receipt of such statement. If Tenant makes such election, the term of this Lease shall expire upon the thirtieth (30th) day after notice of such election is given by Tenant, and Tenant shall vacate the Demised Premises and surrender same to Landlord in accordance with the provisions of Paragraph 7 hereof. If Tenant shall not have elected to terminate this Lease pursuant to this Section 12.03 (or is not entitled to terminate this Lease pursuant to this Paragraph 12) and such repairs are not made by Landlord within two (2) months after the expiration of the period estimated for effecting such repairs, then Tenant may elect to terminate this Lease by giving notice to Landlord not later than sixty (60) days following expiration of the aforesaid restoration period. If Tenant makes such election, the term of this Lease shall expire on the thirtieth (30th) day after notice of such election is given by Tenant, and Tenant shall vacate the Demised Premises and surrender the same to Landlord in accordance with the provisions of Paragraph 7 hereof. 12.04 No damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Demised Premises or of the Building pursuant to this Paragrpah, and the time periods provided to Landlord to complete repairs or restoration shall be extended by the period of any delay beyond the control of Landlord which arises by reason of adjustment of insurance. Notwithstanding the foregoing, Landlord shall be obligated to use all reasonable efforts in order to effectuate an expeditious adjustment with its insurance carrier and to proceed with due diligence in connection with such repair or restoration. Such obligation on Landlord's part shall include the requirement, subject to its lender's consent, that Landlord seek a loan in order to finance such repair or restoration based upon its anticipated 17 18 insurance settlement, if in Landlord's reasonable judgment same would be commercially reasonable. 13. Increase in Premiums. Tenant shall not do, permit or suffer to be done any act, matter, thing or failure to act in respect to the Property or the Demised Premises or use or occupy the Property or the Demised Premises or conduct or operate Tenant's business in any manner objectionable to insurance companies whereby the fire insurance or any other insurance now in force or hereafter to be placed on the Demised Premises or any part thereof shall become void or suspended or whereby any premiums in respect of insurance maintained by Landlord shall be higher than those which would normally have been in effect for the occupancy contemplated under the permitted uses. In case of a breach of this covenant, in addition to all other rights and remedies of Landlord hereunder, Tenant shall (a) indemnify Landlord and hold Landlord harmless from and against any loss which would have been covered by insurance which shall become void or suspended because of such breach by Tenant, and (b) pay to Landlord any and all increase of premiums on any insurance, including, without limitation, rent insurance, resulting from any such breach. 14. Waiver of Subrogation. Landlord and Tenant waive, unless said waiver should invalidate any insurance required or permitted hereunder, their right to recover damages against each other for any reason whatsoever to the extent the damaged party recovers indemnity from its insurance carrier. Any insurance policy procured by either Tenant or Landlord which does not name the other as a named insured shall, if obtainable at no extra cost, contain an express waiver of any right of subrogation by the insurance company, including but not limited to Tenant's worker's compensation carrier, against Landlord or Tenant, whichever the case may be. 15. Eminent Domain. A. If the whole of the Property, Parking Facilities, or the whole of the Demised Premises shall be taken or condemned for a public or quasi-public use under any law, ordinance or regulation, or by right of eminent domain or private purchase in lieu thereof by any competent authority, this Lease shall terminate and Rent shall abate for the unexpired portion of the term of this Lease as of the date the right to possession shall vest in the condemning authority. B. If part of the Demised Premises or a part of the Parking Facilities shall be acquired or condemned as aforesaid, and such acquisition or condemnation shall render the remaining portion unsuitable for the business of Tenant the term of this Lease shall cease and terminate as provided in Paragraph 15(A) hereof, provided however, that diminution of area shall not in and of itself be conclusive as to whether the portion of the Demised Premises remaining after such acquisition is unsuitable for Tenant's business. If such partial taking is not extensive enough to render the Demised Premises unsuitable for the business of Tenant, this Lease shall continue in full force and effect except that the Annual Rental shall be reduced in the same proportion that the area of the Demised Premises taken bears to the area demised. Subject to the rights of any mortgagee of Landlord's estate, Landlord shall, upon receipt of the net condemnation award, make all necessary repairs or alterations to the Building, Property and Parking Facilities so as to render the portion of the Property not taken a complete architectural unit, but Landlord shall in no event be required to spend for such work an amount in excess of the net amount received by Landlord as damages for the part of the Building, Property and Parking Facilities so taken. "Net amount received by Landlord" shall mean that portion of the condemnation award in excess of any sums required to be paid by Landlord to the holder of any mortgage on the property so condemned, and all expenses and legal fees incurred by Landlord in connection with the condemnation proceeding. 18 19 C. If part of the Building or Parking Facilities, but no part of the Demised Premises, is taken or condemned as aforesaid, and, such partial acquisition or condemnation shall render Landlord unable to comply with its obligations under this Lease, or shall render the Demised Premises unsuitable for the business of Tenant, the term of the Lease shall cease and terminate as provided in Paragraph 15.A. hereof, by Landlord sending notice to such effect to Tenant, whereupon Tenant shall immediately vacate the Demised Premises. D. In the event of any condemnation or taking as hereinbefore provided, whether whole or partial, Tenant shall not be entitled to any part of the award, as damages or otherwise, for such condemnation and Landlord is to receive the full amount of such award, and Tenant hereby expressly waives any right or claim to any part thereof. Although all damages in the event of any condemnation are to belong to the Landlord whether such damages are awarded as compensation for diminution in value of the leasehold or the fee of the Demised Premises, Tenant shall have the right to claim and recover from the condemning authority, but not from Landlord, such compensation as may be separately awarded or recoverable by Tenant in Tenant's own right on account of any damage to Tenant's Property, Tenant's business by reason of the condemnation and for or on account of any cost or loss to which Tenant might be put in removing Tenant's merchandise, furniture, fixtures, and equipment, or the loss of Tenant's business or decrease in value thereof. 16. Events of Tenant's Default. Each of the following events shall constitute an Event of Default under this Lease: A. If Tenant shall fail to pay Rent within five (5) days of the date of written notice from Landlord that said Rent is past due (provided that Landlord shall not be required to provide said written notice more than two (2) times in any calendar year); or B. If Tenant shall fail to perform or observe any of the other covenants, terms or conditions contained in this Lease within thirty (30) days after written notice thereof by Landlord (provided that Tenant shall not be deemed to be in default if the default is of such a nature that it cannot be cured within thirty (30) days and Tenant commences to cure its default within said thirty (30) day period and diligently pursues the cure to completion; or C. If a receiver or trustee is appointed to take possession of all or a substantial portion of the assets of Tenant and such receiver or trustee is not dismissed within thirty (30) days; or D. If Tenant makes an assignment for the benefit of creditors; or E. If any bankruptcy, reorganization, insolvency, creditor adjustment or debt rehabilitation proceedings are instituted by or against Tenant under any state or federal law and the same are not dismissed within thirty (30) days; or F. If levy, execution, or attachment proceedings or other process of law are commenced upon, on or against Tenant or a substantial portion of Tenant's assets and the same are not dismissed within thirty (30) days; or G. If a liquidator, receiver, custodian, sequester, conservator, trustee, or other similar judicial officer is applied for by Tenant; or H. If Tenant becomes insolvent in the bankruptcy or equity sense; or I. Intentionally Omitted. 19 20 17. Landlord's Remedies. A. If Tenant fails to pay Annual Rental, Additional Rent, or any other sum payable to Landlord hereunder within five(5) days of the date when due, Tenant shall pay a late charge in the amount of five percent (5%) of the amount of the delinquent payment plus interest accruing on the unpaid sums from the date such sums are due at a rate equal to the rate of interest paid by Landlord on sums borrowed by Landlord (the "Late Charge"). The Late Charge shall be Additional Rent under the terms of this Lease. In no event however shall any interest or other charge on any delinquent payments exceed the amount allowed to be charged under the usury laws of the State of Florida, it being acknowledged and agreed that any amount in excess of such limitation shall be refunded to Tenant by Landlord by means of a credit against the next installment(s) of Rent coming due hereunder, or if no such Rent payments remain to be paid, then the excess shall be refunded in cash. The Late Charge shall be in addition to, and shall not in any way limit any other rights or remedies available to Landlord under the terms of this Lease or at law and in equity. B. Upon the occurrence of an Event of Default, Landlord may, at any time thereafter, and in addition to any other available rights or remedies at law and/or in equity, elect any one or more of the following remedies: (1) Intentionally Omitted. (2) To immediately re-enter the Demised Premises, including Tenant's exclusive Parking Facilities, without accepting surrender of the leasehold estate and remove all persons and all or any property therefrom, with or without summary dispossession proceedings or by any suitable action or proceeding at law, without being liable to indictment, prosecution or damages therefor, and repossess and enjoy the Demised Premises; together with all additions, alterations and improvements. Upon recovering possession of the Demised Premises by reason of or based upon or arising out of a default on the part of Tenant, Landlord may, at Landlord's option, either terminate this Lease or make such alterations and repairs as may be necessary in order to relet the Demised Premises or any part or parts thereof, either in Landlord's name or otherwise, for a term or terms which may at Landlord's option be less than or exceed the period which would otherwise have constituted the balance of the Term of this Lease and at such rent or rents and upon such other terms and conditions as in Landlord's sole discretion may seem advisable and to such person or persons as may in Landlord's discretion seem best. Upon each such reletting all rents received by Landlord from such reletting shall be applied: first, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord; second, to the payment of any costs and expenses of such reletting, including brokerage fees and attorney's fees and all costs of such alterations and repairs; third, to the payment of Rent due and unpaid hereunder; and the residue if any, shall be held by Landlord and applied in payment of future rent as it may become due and payable hereunder. If such rentals received from such reletting during any month shall be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No such re-entry or taking possession of the Demised Premises or the making of alterations and/or improvements thereto or the reletting thereof shall be construed as an election on the part of Landlord to terminate this Lease unless written notice of such intention be given to Tenant. Landlord shall in no event be liable in any way whatsoever for failure to relet the Demised Premises or, in the event that the Demised Premises or any part or parts thereof are relet, for failure to collect the rent thereof under such reletting. Tenant, for Tenant and Tenant's successors and assigns, hereby irrevocably constitutes and appoints Landlord as Tenant's agent to collect the rents due and to become due under all subleases of the Demised Premises or any part thereof without in any way affecting Tenant's obligation to pay any unpaid balance of Rent due or to become due hereunder. Notwithstanding any such reletting without termination, 20 21 Landlord may at any time thereafter elect to terminate this Lease for such previous breach. (3) To terminate this Lease and the term hereby created without any right on the part of Tenant to waive the forfeiture by payment of any sum due or by other performance of any condition, term or covenant broken, whereupon Landlord shall be entitled to recover, any and all sums and damages for violation of Tenant's obligations hereunder accrued and unpaid or which have arisen at the time of such termination. C. No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy herein or by law provided but each shall be cumulative and in addition to every other right or remedy given herein or now or hereafter existing at law or in equity or by statute. D. In the event of a breach by Tenant of any of the covenants or provisions hereof, Landlord, in its sole and absolute discretion, shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for in law or in equity. E. No waiver by Landlord of any breach by Tenant of any of Tenant's obligations, agreements or covenants herein shall be a waiver of any subsequent breach or of any obligation, agreement or covenant, nor shall any forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by Landlord of any rights and remedies with respect to such or any subsequent breach. F. If Tenant defaults under any of the covenants or provisions of this Lease, Landlord, in its sole and absolute discretion and in addition to any other available rights or remedies, may elect to cure Tenant's default in which event any sums advanced and any costs incurred by Landlord in curing such default shall be due and payable by Tenant to Landlord upon demand together with interest thereon from the date the sums are advanced or the costs are incurred until paid to Landlord. G. Landlord shall use reasonable efforts to mitigate its damages in the event of any default by Tenant hereunder. 18. Landlord's Default/Tenant's Remedies. If Landlord shall fail to perform any provision of this Lease or breach any covenant contained on the part of Landlord, Tenant shall give Landlord written notice thereof, and Landlord shall have thirty (30) days after receipt of Tenant's notice to remedy the failure or breach, unless the failure or breach is of such a nature that it may not be cured within thirty (30) days in which event, Landlord shall commence to cure the failure or breach within said thirty (30) day period and diligently pursue the cure to completion. If Landlord fails to cure its default within said thirty (30) day period, or commence the cure and diligently complete same as applicable, Tenant shall be entitled to remedy Landlord's default and deduct the reasonable cost of doing so from the next payment of Rents then coming due under the Lease. If the default is of such a nature that it may not be remedied by Tenant, Tenant shall be entitled to seek equitable relief in order to compel Landlord's cure of the default. In such event, Tenant shall be entitled to recover its reasonable attorneys' fees and costs in seeking such equitable remedy. 19. Quiet Enjoyment. Upon paying the Rent, and upon Tenant's observance and keeping of all the covenants, agreements and conditions of this Lease, Tenant shall quietly have and enjoy the Demised Premises during the term of this Lease without hindrance or molestation by anyone claiming by or through Landlord; subject, however, to the terms, exceptions, reservations and conditions of this Lease. Landlord and Tenant agree that this provision shall be deemed a covenant remaining with the Land, which shall bind Landlord's successors and/or assigns. 21 22 20. No Waiver. The failure of either party to insist in any one or more instances upon the strict performance of any one or more agreements, terms, covenants, conditions, or obligations of this Lease, or to exercise any right, remedy or election therein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or of the right to exercise such right, remedy or election, with respect to any subsequent breach, act, or omission. The manner of enforcement or the failure of Landlord to enforce any of the covenants, conditions, rules and regulations set forth herein or hereafter adopted, against any tenant in the Building shall not be deemed a waiver of any such covenants, conditions, rules and regulations. 21. Subordination Non-Disturbance and Attornment/Estoppel. A. Upon written request of Landlord, or any mortgagee or beneficiary of Landlord, Tenant will in writing, subordinate its right hereunder to the interest of any ground lessor of the Land upon which the Demised Premises is situated and to the lien of any mortgage or deed of trust, now or hereafter in force against the Land and Building of which the Demised Premises is a part, and upon any building hereafter placed upon the land of which the Demised Premises is a part and to all advances made or hereafter to be made upon the security thereof; provided, however, that the ground lessor, or the mortgagee or trustee named in said mortgage or trust deed shall agree that Tenant's peaceable possession of the Demised Premises or its rights under this Lease will not be diminished on account thereof. B. In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deeds of trust, upon any such foreclosure or sale Tenant agrees to recognize such beneficiary or purchaser as the Landlord under this Lease, provided Tenant's right to possession continues unabated and Tenant's rights under this Lease continue undiminished. C. Landlord agrees to obtain a Non-Disturbance and Attornment Agreement from its current lender(s) and the ground lessor, if any, and delivery same to Tenant within thirty (30) days from the date hereof and from any future lender within thirty (30) days from obtaining financing from such lender, substantially in accordance with the form attached hereto as Exhibit "H". D. Intentionally Omitted. E. Within ten business (10) days after written request from Landlord from time to time, Tenant shall execute and deliver to Landlord, or Landlord's designee, a written statement certifying, (i) that this Lease is unmodified and in full force and effect, or is in full force and effect as modified and stating the modifications; (ii) the amount of Annual Rent and the date to which Annual Rent and Additional Rent have been paid in advance; and (iii) that Landlord is not in default hereunder or, if Landlord is claimed to be in default, stating the nature of any claimed default; (iv) the amount of security deposit Landlord is holding, if any, and (v) any options to renew or purchase that Tenant may have. 22. Notices. All bills, statements, notices or communications which either party hereto may desire or be required to give to the other shall be given or rendered in writing and either hand delivered to Landlord or Tenant or sent by registered or certified mail or overnight courier, postage prepaid, addressed to Landlord or Tenant at the address set forth on the first page hereof or any other address pursuant to notice given as herein set forth. In addition, if the notice is given to Landlord, copies shall be provided to Tambone Real Estate Development Corporation, 4500 PGA Blvd., Suite 304, Palm Beach Gardens, FL 33418, and John F. Flanigan, Esquire, Moyle, Flanigan, Katz, et al, 625 N. Flagler Drive, Barnett Centre, 9th Floor, West Palm Beach, FL 33401. Any notices given in accordance with the Lease shall be deemed to be 22 23 given when the same is hand delivered to the other party, delivered by the overnight courier or upon acceptance or refusal of the certified or registered mail. as the case may be. 23. Holding Over. Should Tenant continue to occupy the Demised Premises after expiration of the term of this Lease or any renewals thereof, such tenancy shall (without limitation on any of Landlord's rights or remedies therefor) be one at sufferance from month to month at a minimum monthly rent equal to 150% of the Rent payable for the last month of the term of this Lease. 24. Brokers. Tenant represents and warrants that it has not employed any broker or agent as its representative in the negotiation for or the obtaining of this Lease other than PREVE LIBERATORE & BARTON ("Broker") whose commission shall be paid by Landlord pursuant to a separate written agreement, and agrees to indemnify and hold Landlord harmless from and against any and all cost or liability for compensation (including, without limitation, reasonable attorneys' fees and costs) claimed by any other broker or agent other than Broker with whom it has dealt or claimed to have been engaged by Tenant. 25. Definitions of Landlord and Tenant. A. The word "Tenant" as used in this Lease shall be construed to mean tenants in all cases where there is more than one tenant, and the necessary grammatical changes required to make the provisions hereof apply to corporations, partnerships, or individuals, men or women, shall in all cases be assumed as through in each case fully expressed. Each provision hereof shall extend to and shall, as the case may require, bind and inure to the benefit of Tenant and its heirs, legal representatives, successors and assigns, provided that this Lease shall not inure to the benefit of any assignee, heir, legal representative, transferee or successor of Tenant except upon the express written consent or election of Landlord, except as herein otherwise provided. B. The term "Landlord" as used in this Lease shall mean the fee owner of the Building or, if different, the party holding and exercising the right, as against all others (except space tenants of Building) to possession of the Building. In the event of voluntary or involuntary transfer of such Ownership or right to a successor in interest of Landlord, Landlord shall be freed and relieved of all liability and obligation hereunder which shall thereafter accrue (and, as to any unapplied portion of Tenant's security deposit, Landlord shall be relieved of all liability therefore upon transfer of such portion to its successor in interest) and Tenant shall look solely to such successor in interest for the performance of the covenants and obligations of Landlord hereunder which shall thereafter accrue, provided that such successor in interest agrees to assume and be bound by the terms of this Lease. Subject to the foregoing, the provisions hereof shall be binding upon and inure to the benefit of the heirs, personal representatives, successors and assigns of Landlord. In no event shall the liability of Landlord to Tenant hereunder exceed Landlord's interest in the Building. Tenant agrees that no judgment arising from any default of Tenant's agreements under the terms of this Lease or by reason of any willful or negligent act of Landlord and its building manager, and their employees, officers, agents and independent contractors, shall attach against any property of Landlord other than the Building, and in no event shall any such judgment constitute a lien upon any other lands or properties owned by Landlord wheresoever located. Neither shall any such judgment attach or constitute a lien against any property of any principal or partner of the Landlord, or of their heirs, executors, administrators, successors or assigns. 26. Prior Agreements; Amendments. Neither party hereto has made any representations or promises except as contained herein. No agreement hereinafter made shall be effective to change, modify, discharge or effect an abandonment of this Lease, in whole or in part, unless such agreement is in writing and signed by the party 23 24 against whom enforcement of the change, modification, discharge or abandonment is sought. 27. Captions. The captions of the Paragraphs in this Lease are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. 28. Construction of Lease. If any term of this Lease, or the application thereof to any person or circumstances, shall to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term of this Lease shall be valid and enforceable to the fullest extent permitted by law. 29. Construction Liens, etc. A. Tenant shall comply with the Construction Lien Law of the State of Florida as set forth in Florida Statutes, Chapter 713. Tenant will not create or permit to be created or remain as a result of any action or work done or contracted for by Tenant, and will discharge, any lien, encumbrance or charge (levied on account of any imposition or any mechanic's, laborer's or materialman's lien) which might be or become a lien, encumbrance or charge upon the Property, the Demised Premises or any part thereof or the income therefrom, whether or not the same shall have any priority or preference over or ranking on a parity with the estate, rights and interest of Landlord in the Property, the Demised Premises or any part thereof, or the income therefrom, and Tenant will not suffer any other matter or thing whereby the estate, rights and interest of Landlord in the Property, the Demised Premises or any part thereof might be impaired; provided that any mechanic's, laborer's or materialman's lien may be discharged in accordance with Subparagraph B of this Paragraph 29. B. If any construction, laborer's or materialman's lien shall at any time be filed against the Building, the Demised Premises or any part thereof as a result of any action or work done on behalf of or contracted for by Tenant, Tenant, within fifteen (15) days after notice of the filing thereof, will cause it to be discharged of record by payment, deposit, bond, order of the court of competent jurisdiction or otherwise. If Tenant shall fail to cause such lien to be discharged within the period aforesaid, then in addition to any other right or remedy, Landlord may, but shall not be obligated to, discharge it either by paying the amount claimed to be due or by transferring same to security, and in any such event, Landlord shall be entitled, if Landlord so elects, to compel prosecution of any action for the foreclosure of such lien by the lienor and to pay the amount of the judgment in favor of the lienor with interest costs and allowances. Any amount so paid by Landlord and all costs, expenses, and fees including without limitation attorneys' fees, incurred by Landlord in connection with any mechanic's, laborer's or materialman's lien, whether or to the same has been discharged of record by payment, deposit, bond, order of the court of competent jurisdiction or otherwise, together with interest thereon, at the maximum rate permitted by law, from the respective dates of Landlord's making of the payments and incurring of the costs and expenses, shall constitute Additional Rent payable by Tenant to Landlord upon demand. C. Nothing contained in this Lease shall be deemed or construed in any way as constituting the consent or request of Landlord, express or implied by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishing of any materials for any alteration, addition, improvement or repair to the Property, the Demised Premises or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any lien against the Property, the Demised Premises or any part thereof, nor to subject Landlord's estate in the Property to liability under the Construction Lien Law of the 24 25 State of Florida in any way, it being expressly understood that Landlord's estate shall not be subject to any such liability. D. Notwithstanding any provision to the contrary set forth in this Lease, it is expressly understood and agreed that the interest of the Landlord shall not be subject to liens for improvements made by Tenant in and to the Demised Premises, including the Leasehold Improvements, Tenant shall notify each and every contractor making any such improvements of the provision set forth in the preceding sentence of this Paragraph, and shall require each such contractor to execute an agreement providing that it will look solely to Tenant for payment in connection with improvements and will not file any liens or notices to owner in connection with the improvements. The parties agree to execute, acknowledge and deliver to Landlord without charge a Construction Lien Notice, in recordable form, containing a confirmation that the interest of the Landlord shall not be subject to liens for improvements made by Tenant to the Property or the Demised Premises. 30. Certain Rights Reserved to Landlord. Landlord reserves the following rights: A. Adjoining Areas. The use and reasonable access thereto through the Demised Premises for the purposes of operation, maintenance, decoration and repair of all walls, windows and doors bounding the Demised Premises (including exterior walls of the Building, core corridor walls and doors and any core corridor entrance) except the inside surface thereof, any terraces or roofs adjacent to the Demised Premises and any space in or adjacent to the Demised Premises used for shafts, pipes, conduits, fan rooms, ducts, electric or other utilities, sinks or other facilities are reserved to Landlord. Landlord shall use reasonable efforts to minimize any disruption of Tenant's operations caused by the exercise of Landlord's rights hereunder. B. Common Areas and Parking Facilities. Subject to Tenant's parking rights as set forth in the attached Parking Space Schedule, Landlord shall have the exclusive right to manage the Common Areas and the Parking Facilities. 31. Intentionally Omitted. 32. Rules and Regulations. Tenant covenants and agrees that it shall comply with and observe all nondiscriminatory, uniformly applied reasonable rules and regulations ("Rules and Regulations") which Landlord shall from time to time promulgate for the management and use of the Demised Premises, the Building and the Parking Facilities. Landlord's initial Rules and Regulations are set forth on Exhibit "I" attached hereto and made a part hereof Landlord shall have the right from time to time to reasonably amend or supplement the Rules and Regulations theretofore promulgated. 33. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, COUNTERCLAIM, OR SUBSEQUENT PROCEEDING, BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE DEMISED PREMISES, THE BUILDING OR THE PARKING FACILITIES AND/OR ANY CLAIM OF INJURY OR DAMAGE. 34. Radon Gas. Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of Radon that exceed Federal and State guidelines have been found in buildings in Florida. Additional information regarding Radon and Radon testing may be obtained from your county public health unit. 35. No Option. The submission of this Lease to Tenant for examination does not constitute a reservation of or option for the Demised Premises and this Lease becomes effective as a lease only upon execution and delivery thereof by the Landlord and Tenant. 25 26 36. Force Majeure. Notwithstanding anything to the contrary contained herein, neither Landlord nor Tenant shall be deemed in default with respect to any obligation hereunder, if their inability to perform is due to any event of Force Majeure. "Force Majeure" shall mean any and all causes beyond the reasonable control of a party, including, without limitation, governmental restrictions, labor disputes (including strikes, slowdowns and similar labor problems), accident, mechanical breakdown, shortages or inability to obtain labor, fuel, steam, water, electricity or materials (for which no substitute is readily available at an economically reasonable price), acts of God, enemy action, civil commotion, fire or other casualty. Force Majeure shall not include the financial condition of a party or its inability to make payments. No party shall be entitled to claim Force Majeure unless it shall have given the other party notice of the cause of such Force Majeure with reasonable promptness after it shall make a good faith determination that it will seek the benefit of Force Majeure. 37. Recording. Landlord and Tenant acknowledge and agree that a Memorandum of Lease in form and substance as attached hereto as Exhibit "J" shall be recorded in the Public Records of Palm Beach County, Florida. The Memorandum will be recorded by Landlord within three (3) business days of the closing of the purchase of the Land by Landlord. 38. Expansion Option. Tenant shall have the right on the fifth (5th) anniversary of the Rental Commencement Date to lease up to an additional Three Thousand Two Hundred Eighty (3,280) square feet, on the first floor of the Building, or such greater amount of square footage which has not been leased by Tenant if Tenant elects to reduce the size of the Demised Premises as set forth in Paragraph 1.B. or if Landlord increases the size of the Building pursuant to Paragraph 47. (The portions of the adjacent square footage on which Tenant shall hold options hereunder and any space leased by Tenant pursuant to Paragraph 39 below, shall be defined herein as the "Additional Space"). Tenant shall only be entitled to lease the Additional Space in increments to be determined by the size of the existing office suites developed in the Additional Space. The per square foot rental rate for the Additional Space will be the rate then being paid by Tenant under this Lease for the Demised Premises with the exception that Landlord shall provide Tenant with an improvement allowance for the Additional Space equal to the then "Fair Market" (as defined in the attached Exhibit "K") for such improvement allowances. If Landlord and Tenant cannot agree on a "Fair Market" improvement allowance, the improvement allowance matter will be resolved via arbitration pursuant to the procedure set forth in Exhibit "K". Tenant shall provide Landlord with nine (9) months prior written notice of its election to expand into the Additional Space in accordance with the option granted in this Paragraph 38, failing which, the option shall be deemed waived and of no further force and effect. Upon delivery of possession of the Additional Space to Tenant, Tenant shall have ninety (90) days to construct its leasehold improvements to the Additional Space with Rent to commence for the Additional Space on the earlier of occupancy for the purpose of conducting its business of the Additional Space by Tenant or ninety (90) days from the delivery of possession of the Additional Space to Tenant for its leasehold improvements. 39. Preferential Right to Lease. Tenant shall have the first right to lease any Additional Space which becomes vacant in the Building (after first being occupied) during the term of the Lease. The per square foot rental rate for any Additional Space under this Paragraph shall be the then prevailing "Fair Market" per square foot rental rate, including a "Fair Market" tenant improvement allowance determined in accordance with Exhibit "J". Tenant shall have ten (10) days from receipt of written notice from Landlord that Additional Space is or will become vacant in the Building to exercise its right under this paragraph. Landlord shall give Tenant ninety (90) days prior notice with respect to Additional Space which is to become vacant as a result of the expiration of the stated term of another tenant's lease and use its best efforts to give Tenant as much notice as possible with respect to any unscheduled vacancies. If Tenant exercises its right to lease 26 27 Additional Space pursuant to this Paragraph, Tenant shall have sixty (60) days from receipt of "as built" plans for the Additional Space to design any leasehold improvements Tenant desires to make to the Additional Space and ninety (90) days to construct the leasehold improvements. Rent shall commence for any Additional Space leased under this Paragraph on the earlier of (a) the date of occupancy of all or a portion of the Additional Space by Tenant, (b) completion of construction of the leasehold improvements to the Additional Space as evidenced by a Certificate of Occupancy thereof, or (c) ninety (90) days from the delivery of the Additional Space to Tenant for construction of Tenant's leasehold improvements. If Tenant leases any space under this Paragraph the term of the Lease for the Additional Space shall run concurrently and end coterminously with the balance of the term of the Lease for the Demised Premises. 40. Renewal Options. Provided Tenant is not in default in payment of Rent at the time of exercise or at the time of commencement of any of the renewal options referred to herein, Tenant shall have three (3) five (5) year options to extend the Term of the Lease after the expiration of the original Term. To exercise each of the options, Tenant must give Landlord written notice of its intention to exercise the option not less than twelve (12) months prior to the expiration of the original Term of the Lease or the applicable renewal Term. If Tenant fails to give twelve (12) months notice of its intention to exercise the option, and if Landlord has not committed the space to another prospect as evidenced by a signed Letter of Intent for the Demised Premises or a portion thereof, Tenant shall be entitled to elect to exercise the option on or before that day which is nine (9) months prior to the expiration of the original Term of the Lease or the then applicable renewal Term. If Tenant elects to exercise any of its renewal options pursuant to the terms of this paragraph, the per square foot rental for each renewal Term for the Demised Premises and any Additional Space during each renewal Term shall be the Fair Market per square foot rental rate (including any Fair Market improvement allowance) at the time of the applicable renewal determined in accordance with the provisions of Exhibit "J", provided, however, that in no event shall the Rent for the first renewal Term be higher than $25.00 per square foot, plus any Excess Operating Expenses to be paid by Tenant as Additional Rent pursuant to Paragraph 5. If Tenant fails to give notice as required herein of its exercise of any renewal option, then such option and all subsequent options shall terminate and be of no further force and effect. 41. Storage Space. Tenant shall be granted the use of three thousand (3,000) square feet of storage space in the Building at no additional Rent, if, through collaboration with Tenant's architect, Landlord is able to design such space into the Building at no additional construction cost. 42. Signage. Tenant shall have the exclusive right to display its sign and logo on the Building in the following locations: A. On two (2) sides of the Building on the top of the Building attached to the stucco parapet wall as shown on the Building Plans and Specifications; B. Above the entry of Tenant's exclusive lobby on the first floor of the Building; C. On the ground mounted monument signage to be located at the entrance to the Property. 43. Satellite Dish. Tenant shall have the right, at its own expense, but at no additional charge from Landlord, to install a satellite dish and/or antenna on the roof subject to Tenant obtaining any and all required governmental approvals of the installation. The cost of any required screening of the roof mounted equipment shall be included in the cost to be paid by Tenant for the roof mounted equipment. Tenant shall not install 27 28 any equipment on the roof which will overburden the Building structure or require any additional structural expense in construction of the Building. Landlord shall cooperate fully with Tenant in obtaining all required approvals of the satellite dish and/or antenna. Landlord shall not install any other satellite dish or antenna on the roof which would interfere with Tenant's signals or reception. 44. Option to Purchase. Tenant shall have the option to purchase the Building at any time from the date of execution of the Lease, through that date which is one (1) year from the issuance of the Certificate of Occupancy for the Building. If Tenant exercises its option to purchase, the purchase price shall be Thirteen Million One Hundred Fifteen Thousand Ten and 00/100 ($13,115,010) (based on the gross square footage of the Building of 95,280 square feet at $137.65/gross square foot. If the gross square footage of the Building is increased as set forth in Paragraph 47, the purchase price shall be increased accordingly). If Landlord has applied for or closed permanent financing prior to Tenant exercising its option to purchase the Building, Tenant shall pay, in addition to the purchase price, any and all costs and expenses incurred by Landlord in connection with the permanent financing, (but not the construction loan financing the costs of which shall be borne solely by Landlord) including, without limitation, documentary stamps, intangible taxes, title insurance costs, recording costs, prepayment penalties, assumption fees, loan application fees, and commitment fees. If Tenant elects to exercise its option, it shall execute and deliver to Landlord a Contract containing the terms set forth herein and those customarily contained in contracts for the sale of similar commercial real estate in Palm Beach County Florida which are not inconsistent with the terms hereof including the obligation of Landlord to pay for the cost of the documentary stamps on the deed and the title insurance premium. Tenant shall deliver a cash deposit of $100,000.00 along with such Contract. Closing shall occur not less than thirty (30) days and no more than one hundred twenty (120) days from the date of full execution of the Contract, but in no event prior to issuance of a Certificate of Occupancy for the Demised Premises. Any sale contemplated hereby, shall be all cash to Landlord. Landlord agrees to notify Tenant of any and all potential costs to be incurred by Tenant as a result of Landlord obtaining permanent financing prior to Landlord attempting to obtain permanent financing on the Building and shall provide Tenant with copies of the executed loan documents within a reasonable period of time after closing such permanent financing. 45. Right of First Refusal to Purchase the Building. If the Landlord shall determine at any time during the term of the Lease to sell the Building and if Landlord receives a bonafide offer to purchase from a third party, which Landlord desires to accept, Landlord shall give Tenant ten (10) business days to exercise its right of the first refusal to purchase the Building on the same terms and conditions as set forth in the bonafide third party offer. If Tenant elects to exercise the right of first refusal to purchase the Building, the purchase shall be closed in accordance with the provisions of the bonafide third party offer. A sale of the Building shall include any transfer (whether in a single or a series of transactions) of a majority of the interests in Landlord. 46. Non-Compete. Landlord shall not lease, or allow any assignment or sublease to, or sell any premises within the Building or the Property to any competitor of Tenant, provided Tenant has not exercised its right to assign or sublet the Demised Premises to an unaffiliated third party or vacated the Building. 47. Expansion of Building. Landlord and Tenant agree that Landlord and Tenant shall use their best good faith efforts to design Tenants Leasehold Improvements to allow for the expansion of the two (2) story portion of the Building up to a maximum of 1,390 additional square feet on the first and second floors in the area marked as the "Proposed Building Expansion" on Exhibit "C". If Landlord is successful in completing the Proposed Building Expansion, any square footage located in the Proposed Building 28 29 Expansion shall be added to (a) in the Additional Space as defined in Paragraph 38, (b) the total square footage of the Building and (c) the total square footage permitted to be contained in the Building and Adjacent Buildings. 48. Division of Property. Landlord and Tenant acknowledge and agree that the Building and the Land upon which the Building is located, cannot be replatted to subdivide the Building and the portion of the Land on which the Building is located from the entire tract which comprises the Land. Accordingly, Landlord and Tenant agree that should Tenant elect to exercise its option to purchase the Building under Paragraph 44 or its right of first refusal under Paragraph 45, then Landlord and Tenant shall cooperate with one another using their best efforts to obtain an exemption from the platting requirement to enable the subdivision of the Land. Landlord and Tenant agree to execute such cross easement agreements and other agreements as may be reasonably necessary to accomplish the subdivision of the Land. If an exemption cannot be obtained, then the Building, Adjacent Buildings and Land shall be submitted to a commercial condominium form of ownership and the Building shall be designated as a separate unit from the Adjacent Buildings. The Land and Parking Facilities, landscaping, access roads and signage shall be designated as Common Areas to be maintained by the owners of the Building and Adjacent Buildings sharing the cost on a prorata basis. Prior to closing any purchase contemplated in Paragraph 44 and 45, Landlord and Tenant agree to execute any and all documentation necessary in order to complete the subdivision of the Land or conversion to the commercial condominium form of ownership in the event such conversion is necessitated by Tenant's election of any of the options set forth herein. 49. Landlord's Representations. Landlord represents and warrants to Tenant (a) Landlord has entered into a contact to acquire the Land from its present owner; (b) Landlord shall close on the purchase of the Land on or before May 1, 1995; (c) Landlord will provide Tenant with copies of any notice of default which Landlord may receive from the Seller and with a copy of the executed deed of conveyance within three (3) business days of the closing of the purchase of the Land; (d) Landlord shall cause the Land, Buildings, Adjacent Buildings and Parking Facilities to be developed substantially as set forth on the Site Plan and shall complete the development of the Adjacent Buildings in such a fashion so as to not interfere with the use by Tenant of the Building and Parking Facilities. Landlord shall not make any material changes to the Site Plan without the prior written consent of Tenant, which shall not be unreasonably withheld or delayed. Landlord further covenants, represents and warrants that prior to the Rental Commencement Date (i) title to the Land, including any beneficial interest therein or any interest in this Lease, shall not be sold, transferred or conveyed by Landlord without Tenant's prior written consent, which consent may be withheld in Tenant's sole discretion and (ii) Landlord's obligations to construct the Building pursuant to the terms of this Lease shall not be delegated to or undertaken by any third party other than Catalfumo Construction, Inc. Notwithstanding the foregoing, Landlord shall be permitted to convey the Land to an entity in which Daniel S. Catalfumo and Richard Tambone collectively own directly or indirectly a majority or controlling interest provided that reasonably acceptable evidence of such ownership is furnished to Tenant together with properly executed copies of the recorded deed of conveyance and written agreement whereby this Lease is assigned to and assumed by such entity. 50. Security. If Landlord elects to provide security guard service for the Building or Property or any other property owned by Landlord and located within the Northcorp project, Landlord shall employ The Wackenhut Corporation Security Guard Services for such services. Regardless of whether or not Landlord elects to provide security guard services to the Property, Tenant shall, at its own cost and expense, be entitled to do so using its own forces, provided that Tenant's security guard services shall not 29 30 unreasonably interfere with the use of the Adjacent Buildings and Parking Facilities by the Tenants of the Adjacent Buildings. 51. Environmental Matters. A. Status of Property. Landlord represents and warrants that any handling, transportation, storage, treatment or usage of hazardous or toxic substances (as defined by any applicable government authority and hereinafter being referred to as "Hazardous Materials") that has occurred or will occur on the Property (except for any of such activities which may be undertaken by Tenant or its agents or invitees) shall be in compliance with all applicable federal, state and local laws, regulations and ordinances. Landlord further represents and warrants that no leak, spill, discharge, emission or disposal of Hazardous Materials has occurred on the Property and that the soil, groundwater, soil vapor on or under the Property are free of Hazardous Materials as of the date hereof. B. Indemnification By Landlord. Landlord agrees to indemnify, defend and hold Tenant and its officers, partners, directors, shareholders, employees and agents harmless from any claims, judgments, damages, fines, penalties, costs, liabilities (including sums paid in settlement of claims) or loss including fees and expenses of any attorneys, consultants and experts which arise during or after the Term or any renewal term, or in connection with the presence or suspected presence of Hazardous Materials in the soil, groundwater, or soil vapor on or under the Property, unless such Hazardous Materials are present solely as the result of the acts of Tenant, its officers, employees, invitees, or agents. Without limiting the generality of the foregoing, this indemnification shall survive the expiration of this Lease and does specifically cover costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of the presence of suspected presence of Hazardous Materials in the soil, groundwater, or soil vapor on or under the Property, unless the Hazardous Materials are present solely as the result of the acts of Tenant, its officers, agents, invitees, or employees. Without limiting the generality of the foregoing, this indemnification shall also specifically cover costs in connection with: (a) soil, ground water or soil vapor on or under the Property before the date hereof; or (b) Hazardous Materials that migrate, flow percolate, diffuse or in any way move onto or under the Property after the date hereof; or (c) Hazardous Materials present on or under the Property as a result of any discharge, dumping, spilling (accidental or otherwise) onto the Property during or after the Term or any renewal term by any person or entity other than Tenant, its officers, employees, invitees and agents. 52. Compliance With Laws and Procedures A. Compliance. Tenant at its sole cost, will promptly comply with all applicable governmental or quasi governmental laws, guidelines, rules, regulations and requirements, whether of federal, state, or local origin, applicable to the Premises, including, but not limited to, the Americans with Disabilities Act, 42 U.S.C. Section 12101 et seq. (the "Legal Requirements") arising from or pertaining to the use or occupancy of the Premises. Notwithstanding the foregoing, the following are applicable: (i) Landlord as opposed to Tenant shall be responsible for insuring that the following elements of the Building comply with the Legal Requirements; structural elements; Common Areas; and mechanical, electrical and plumbing elements common to the entire Building (not including, for example, plumbing and electrical fixtures and fittings located in the Premises); (ii) Landlord's obligations with respect to Hazardous Materials is set forth in Paragraph 51 above. Tenant at its sole cost and expense shall be solely responsible for taking any and all measures which are required to comply with the requirements of the ADA within the Premises. Any 30 31 Alterations to the Premises made by or on behalf of Tenant for the purpose of complying with the ADA or which otherwise require compliance with the ADA shall be done in accordance with this Lease; provided, that Landlord's consent to such Alterations shall not constitute either Landlord's assumption, in whole or in part, of Tenant's responsibility for compliance with the ADA, or representation or confirmation by Landlord that such Alterations comply with the provisions of the ADA. Notwithstanding the foregoing, Landlord as opposed to Tenant shall be responsible for non-compliance with Legal Requirements of any work performed by Tenant's contractor to the extent the Building and Demised Premises are deficient in terms of the Legal Requirements as the same exists on the date the Building and Demised Premises are delivered to Tenant's contractor. 53. No Right to Use the Name "Wackenhut". Notwithstanding anything to the contrary contained herein, the right to use the name, "Wackenhut" alone, or in combination with any other words, such as, for example, "The Wackenhut Center" or "The Wackenhut Headquarters" or any similar combinations, together with the right to any trademarks, service marks, or logos of Tenant, its affiliates or subsidiaries, whether now or hereafter created or existing shall belong solely and exclusively to Tenant and Landlord hereby expressly disclaims any right, title or interest therein or thereto. No permission, express or implied, is granted to Landlord by Tenant to use the same in any print or media advertisements or notices without the express prior written consent of Tenant, which consent Tenant may withhold in its sole and absolute discretion. Upon the termination of this Lease for any reason or in the event of any assignment or sublease by Tenant, Tenant shall have the right to remove its signage from the exterior and interior of the Building and the Property at its expense. This provision shall expressly survive the termination or cancellation of this Lease and may be enforced by injunctive relief in addition to any other remedies available at law or in equity to Tenant. IN WITNESS WHEREOF, the parties hereto have executed this Lease on the day and year first aforesaid. Signed, sealed and delivered LANDLORD: in the presence of: - ---------------------------- -------------------------- DANIEL S. CATALFUMO, as Trustee under F.S. 689.071 - ---------------------------- TENANT: THE WACKENHUT CORPORATION - ---------------------------- - ---------------------------- By: --------------------- Senior Vice-President 31 EX-10.6 11 FIRST AMENDMENT TO LEASE 11/3/95 1 EXHIBIT 10.6 FIRST AMENDMENT TO LEASE This First Amendment to Lease is executed this 3rd day of November, 1995, by PGA PROFESSIONAL CENTER, LTD. ("Landlord") and THE WACKENHUT CORPORATION ("Tenant"). B A C K G R O U N D: A. Daniel S. Catalfumo, as Trustee under F.S. 689.071 and The Wackenhut Corporation entered into that certain Lease dated April 18, 1995, for the lease of certain space in the building to be known as The Wackenhut Center in Palm Beach Gardens, Florida. B. Daniel S. Catalfumo, as Trustee under F.S. 689.071 assigned his interest as Landlord to PGA Professional Center, Ltd. pursuant to Assignment of Lease dated June 8, 1995. C. Landlord and Tenant desire to modify the Lease as set forth below. NOW THEREFORE, in consideration of the sum of Ten and 00/100 ($10.00) Dollars and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties agree as follows: 1. Recitals. The foregoing recitals are true and correct and incorporated herein by reference. 2. Landlord and Tenant hereby amend the Lease to delete in its entirety Paragraph 44 titled Option To Purchase. 3. Except as modified herein, the Lease remains in full force and effect and unmodified. IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date set forth above. WITNESSES: PGA PROFESSIONAL CENTER, LTD. BY: PGA PROFESSIONAL CENTER, INC. General Partner - ------------------------- BY: ------------------------------ - ------------------------- Daniel S. Catalfumo, President THE WACKENHUT CORPORATION - ------------------------- BY: - ------------------------- ------------------------------ Robert C. Kneip, Senior Vice-President EX-10.7 12 PROMISSORY NOTE 12/21/95 1 EXHIBIT 10.7 PROMISSORY NOTE U.S. $9,000,000.00 MIAMI, FLORIDA December 21 , 1995 FOR VALUE RECEIVED, ACP-ATRIUM CG, LIMITED PARTNERSHIP, a Florida limited partnership, having an office at 3440 Hollywood Boulevard, #420, Hollywood, Florida 33021 (the "Maker"), promises to pay to the order of THE WACKENHUT CORPORATION, a Florida corporation, its successors and assigns (the "Lender"), the principal sum of NINE MILLION AND NO/100 DOLLARS ($9,000,000.00) (the "Principal Amount"), together with interest thereon (computed daily on the outstanding principal balance of this Note) at a daily rate, expressed as a fraction the denominator of which is three hundred sixty five (365), and the numerator of which is six and one-half percent (6.5%), per annum. The principal and interest due under this Note shall be payable in lawful money of the United States of America to the order of Lender at 1500 San Remo Avenue, Coral Gables, Florida or at such other place as may be designated in writing by Lender, as follows: Monthly installments equal to one hundred percent (100%) of the Maker's Net Cash Flow (as hereinafter defined) for the preceding month, shall be due and payable on the 15th day of each month beginning February 15, 1996. The "preceding month" as used herein shall mean the preceding calendar month except with respect to the first installment due February 15, 1996 which shall include 100% of Maker's Net Cash Flow (as hereinafter defined) commencing on the date hereof through and including January 31, 1996. Such monthly installments shall continue until the entire indebtedness evidenced by this Note is fully paid, except that any remaining indebtedness, if not sooner paid, shall be due and payable in full on December 21, 1997 (the "Final Payment Date"). Each monthly installment shall be applied first to accrued interest on the unpaid Principal Amount, then to late charges, if any, and then to the repayment of any deferred interest which has been capitalized and added to the Principal Amount as set forth below, provided, however, that each monthly installment may be applied by the Lender to the repayment of any sums advanced by the Lender pursuant to the terms of the Mortgage (as hereinafter defined). Prior to default and acceleration of the entire Principal Amount, accrued interest remaining unpaid after application of each monthly installment as set forth above shall be added to the Principal Amount hereof as of the 15th day of each 2 month and shall thereafter bear interest at the interest rate set forth above until paid. The Maker shall deliver to Lender with each such monthly installment a statement of Maker's Operating Income, Operating Expenses and Net Cash Flow (as such terms are hereinafter defined) computed on a cash basis in accordance with generally accepted accounting principles, consistently applied, covering the preceding month and certified by an officer of Maker to be accurate and complete. In addition, Maker shall deliver to Lender within ninety (90) days after the end of each calendar year commencing with calendar year 1996, an annual financial and operating statement covering the Property (as hereinafter defined) in such detail as may be reasonably required by Lender, certified as accurate and complete by an officer of Maker, including the current rent roll, the gross income received, all operating expenses, the net operating income and depreciation for federal income tax purposes. Furthermore, Maker shall deliver to Lender a copy of Maker's federal income tax return at the time the return is filed with the Internal Revenue Service (but not later than July 1 of each calendar year). Failure by Maker to deliver the statements and income tax returns by the dates required above shall constitute a default under this Note. For purposes of this Note, the following terms shall have the following meanings: "Affiliate" or "Affiliates" shall mean a person or entity controlling, controlled by or under common control of the Maker. "Capital Expenditure" shall mean any expenditure which is capitalized under generally accepted accounting principles. "Leasing Costs" shall mean any leasing commission, cash tenant allowance, amount loaned to a tenant (provided such loan was made in connection with such tenant's status as a tenant and in connection with a lease agreement with such tenant), "free rent", reduced rent, or other income concession, the cost of any refurbishment, build-out, or improvement to the premises leased to a tenant or other out of pocket cost or expense of Maker allocable to a lease. "Net Cash Flow" shall mean for the preceding month, the amount, if any, by which Operating Income for such period exceeds Operating Expenses for such period. "Operating Expenses" shall mean for the preceding month, all expenses, computed on a cash basis in accordance with generally accepted accounting principles, consistently applied, paid by Maker during such period in connection with the operation of the Property, as follows: 2 3 (a) expenses in connection with the cleaning, repair, maintenance, decoration and painting of the Property, net of any insurance proceeds in respect of any of the foregoing; (b) wages, benefits, payroll taxes, uniforms, insurance costs and all other related expenses for on-site building personnel, up to and including the level of the on-site building manager, engaged in the repair, operation and maintenance of the Property and service to tenants; (c) management fees at prevailing market rates except that if any such fees are paid to an Affiliate of Maker then management fees in excess of 6% of the Operating Income shall be excluded to the extent such fees are not included in Operating Income. (d) the cost of all electricity, oil, gas, water, steam, heat, ventilation, air conditioning and any other energy, utility or similar item and overtime services and the cost of building and cleaning supplies; (e) all taxes (including, without limitation, real estate taxes, personal or other property taxes and all sales, value added, use and similar taxes), assessments, water, sewer or other rents, rates and charges, excises, levies, license fees, permit fees, inspection fees and other authorization fees and other charges, of every character that may be assessed, levied, confirmed or imposed on or in respect of or be a lien upon (a) the Property or any part thereof or any rent therefrom or (b) any occupancy, use, leasing or possession of the Property or any part thereof or any gross receipt thereof or of the rent therefrom. Notwithstanding the foregoing, there shall be excluded from taxes as defined herein any income, profits or revenue tax upon the income of Maker or any franchise, excise, corporate, estate, inheritance, succession, capital levy or transfer tax of Maker. (f) rent, liability, casualty and fidelity insurance premiums (which in the case of any policies covering multiple properties, shall be allocated to the Property pro rata in proportion to the insured value of the properties covered by such policies); (g) legal and accounting fees directly related to the operation of the Property based on a reasonable allocation of such fees and expenses by Maker if not separately charged by such providers; (h) all other expenses paid by the Maker which in accordance with generally accepted accounting principles would be included in Maker's annual financial statements for such period as operating expenses of the Property. Notwithstanding the foregoing, Operating Expenses shall not include (i) any Capital Expenditure, Leasing Cost or any 3 4 depreciation or amortization thereof; (ii) interest, principal and premium, if any, paid in respect of this Note or any principal, interest or other indebtedness paid in respect of any other loan to Maker, including without limitation, that certain second mortgage loan made of even date herewith by ALI Inc. to Maker or any renewals, additional advances or replacements thereof or thereunder now or hereafter created, arising or existing; (iii) income taxes of Maker; (iv) any expenses (including legal, accounting and other professional fees) incurred in connection with the purchase, financing or refinancing of all or any portion of the Property or in connection with the recovery of any insurance proceeds related thereto unless and to the extent such expenses exceed the proceeds recovered, or (v) any item of expense otherwise includable in Operating Expenses but paid directly or reimbursed by any tenant (and not included in Operating Income), insurance company or other third party. "Operating Income" shall mean for any period, all income of Maker, computed on a cash basis and in accordance with generally accepted accounting principles, consistently applied, received during such period from the operation of the Property, including, but not limited to the following: (a) all income received by Maker from any person (including an Affiliate of Maker) as rent, charges for electricity, oil, gas, water, steam, heat, ventilation, air conditioning and any other energy, utility or similar items and overtime services, escalation and reimbursement charges, management fees, license fees, payment of interest on and amortization of the principal of any amount loaned to a tenant which qualifies as a "Leasing Cost", and other amounts under leases, license agreements or other agreements relating to the Property pursuant to which space, utilities, facilities or equipment and/or other services are furnished by Maker and parking revenues received by Maker from the operation of the garage constituting part of the Property; (b) rent or business interruption insurance proceeds; and (c) all other amounts which in accordance with generally accepted accounting principles would be included in Maker's annual financial statements for such period as operating income of the Property. Notwithstanding the foregoing, Operating Income shall not include (i) any condemnation or insurance proceeds (other than rent or business interruption insurance proceeds or any award for a temporary taking) or (ii) any proceeds resulting from the transfer, financing or refinancing of all or any portion of the Property, provided the net proceeds received by Maker in respect thereof are expended solely for Capital Expenditures or Leasing Costs. 4 5 "Property" shall mean the real property, including the building and improvements situated thereon, encumbered by the Mortgage in favor of Lender given by Maker of even date therewith as security for this Note, located at 1500 San Remo Avenue, Coral Gables, Florida and commonly known as The Atrium at Coral Gables. The payment of this Note shall be secured, inter alia, by a valid, subsisting Purchase Money Real Estate Mortgage, Assignment and Security Agreement by the Maker (the "Mortgage") encumbering certain real property located in Dade County, Florida. If default be made in the payment of any installment under this Note or if the Maker violates any of the terms or breaches any of the conditions of the Mortgage or any of the Loan Documents (as such term is defined in the Mortgage) and such default continues beyond the expiration of any cure period applicable thereto, the entire principal sum and accrued interest shall become due and payable without notice at the option of the Lender. Failure to exercise this option shall not constitute a waiver of the right to exercise the same at any other time. From and after default and until paid, the principal of this Note and any part thereof, and accrued and unpaid interest, if any, shall bear interest at the rate of twelve (12%) percent per annum (the "Default Rate"). Without limiting the scope or generality of any other obligations of Maker set forth in the Mortgage with respect to attorneys' fees, all parties liable for the payment of this Note agree to pay the Lender hereof reasonable attorneys' fees and paralegal fees for the services and expenses of counsel employed after maturity or default to collect this Note (including any bankruptcy proceedings or appeals relating to such enforcement proceedings), or to protect or enforce its rights in any collateral securing this Note, whether or not suit be brought. The principal amount outstanding at any time hereunder may be prepaid in whole or in part without prepayment penalty or premium. The remedies of Lender as provided herein, in the Mortgage and in the other Loan Documents shall be cumulative and concurrent, and may be pursued singly, successively or together, at the sole discretion of Lender, and may be exercised as often as occasion therefor shall arise. Maker and all sureties, endorsers and guarantors of this Note hereby waive demand, presentment for payment, notice of nonpayment, protest, notice of protest and all other notice, filing of suit and diligence in collecting this Note, in enforcing any of the security rights or in proceeding against any collateral securing this Note, and agree that this Note may be enforced by Lender against them without the necessity at any time of resorting to or exhausting any of the collateral for the Note, and waive the right to require the Lender to proceed against any of the collateral, or to require the Lender to pursue any other remedy or enforce any right. 5 6 This Note shall be governed by, and construed and enforced according to, the laws of the State of Florida, without giving effect to principles of conflict of law, except where specifically preempted by federal law. Any action brought against the Maker, or any guarantor or indemnitor of the indebtedness or obligations arising under this Note, may be brought, at the Lender's option, in the State or Federal Courts of Dade County, Florida and Maker hereby submits to jurisdiction in such location. The Lender may, in determining the maximum rate of interest permitted under applicable law in effect from time to time, take advantage of any law, rule or regulation in effect from time to time available to Lender which exempts Lender from any limit upon the rate of interest it may charge or grants to Lender the right to charge a higher rate of interest than that permitted by Florida Statutes. Notwithstanding the foregoing, the Lender does not intend to violate any applicable usury laws. Accordingly, all agreements between Maker and Lender are expressly limited so that in no contingency or event whatsoever, whether by reason of advancement of the proceeds hereof, acceleration of maturity of the unpaid principal balance hereof, or otherwise, shall the amount paid or agreed to be paid to the Lender for the use, forbearance or detention of the money to be advanced hereunder (including all interest on this Note, all loan fees, and the aggregate of all other amounts taken, reserved or charged pursuant to this Note, or the Mortgage which, under applicable laws is or may be deemed to be interest) exceed the maximum rate allowed by applicable law. If, from any circumstances whatsoever, fulfillment of any Security Document, at the time performance of such obligation shall be due, shall cause the effective rate of interest upon the sums evidenced hereby to exceed the maximum rate of interest allowed by applicable law, then, the obligation to be fulfilled shall be reduced automatically to the extent necessary to prevent that effective rate of interest from exceeding the maximum rate allowable under applicable law and to the extent that the Lender shall receive any sum which would constitute excessive interest, such sum shall be applied to the reduction of the unpaid principal balance due hereunder and not to the payment of interest or, if such excessive interest exceeds the unpaid balance of principal, the excess shall be refunded to the Maker. This provision shall control every other provision of all agreements between the Maker and the Lender. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN EVIDENCED BY THIS NOTE, AND ANY INCREASES, AMENDMENTS, EXTENSIONS, MODIFICATIONS OR RENEWALS THEREOF, AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER EXTENDING THIS LOAN, AND ANY INCREASES, AMENDMENTS, 6 7 EXTENSIONS, MODIFICATIONS OR RENEWALS THERETO. IN WITNESS WHEREOF, Maker has executed this Note as of the date first hereinabove written. SIGNED, SEALED AND DELIVERED "MORTGAGOR" IN THE PRESENCE OF: ACP-ATRIUM CG, LIMITED PARTNERSHIP, a Florida Limited Partnership By: ACP-ATRIUM CG, INC., a Florida corporation, its general partner By: - --------------------------------- --------------------------- PRINT NAME OF WITNESS BELOW: Name: ------------------------- Title: - --------------------------------- ------------------------ - --------------------------------- PRINT NAME OF WITNESS BELOW: - --------------------------------- 7 8 STATE OF FLORIDA ) )ss: COUNTY OF ) The foregoing instrument was acknowledged before me this ____ day of ____________, 1995 by _________________________, ________________ of ACP-Atrium CG, Inc., a Florida corporation, on behalf of the corporation as general partner of ACP-Atrium CG, Limited Partnership. He/she is personally known to me or has produced ____________________ (type of identification) as identification. My Commission Expires: --------------------------------- NOTARY PUBLIC - ---------------------- Print Name ---------------------- Commission No. ------------------ [NOTARIAL SEAL] 8 EX-10.8 13 PURCHASE MONEY 12/21/95 1 EXHIBIT 10.8 PURCHASE MONEY REAL ESTATE MORTGAGE, ASSIGNMENT, AND SECURITY AGREEMENT (The "Mortgage") Effective Date: December 21, 1995 Mortgagor: ACP-Atrium CG, Limited Partnership, a Florida limited partnership 3440 Hollywood Boulevard, #420 Hollywood, Florida 33021 Mortgagee: The Wackenhut Corporation 1500 San Remo Avenue Coral Gables, FL 33143 Amount of purchase Nine Million and no/100 Dollars money loan secured ($9,000,000.00) hereby: Land (description of See Exhibit A attached hereto and real estate): incorporated herein by reference. 1. MORTGAGE. In consideration of Ten Dollars ($10.00) and other valuable consideration received by Mortgagor, the receipt and sufficiency of which are hereby acknowledged, Mortgagor hereby grants, bargains, sells, assigns, transfers, conveys and mortgages to Mortgagee, its successors and assigns. to its own proper use and benefit forever, subject to the terms and conditions of this Mortgage, the real estate described above as the Land, together with: 2 (a) Appurtenances. The benefit of all easements and other rights of any nature whatsoever, if any, appurtenant to the Land or the Improvements, or both, the benefit of all rights-of-way, strips and gores of land, streets, alleys, passages, drainage rights, sanitary sewer and potable water rights. storm water drainage rights, rights of ingress and egress to the Land and all adjoining property, and any improvements of Mortgagor now or hereafter located on any of such real property, interests, water rights and powers, oil, gas, mineral and riparian and littoral rights, whether now existing or hereafter arising, together with the reversion or reversions, remainder or remainders, rents, issues, incomes and profits of any of the foregoing (the "Appurtenances"). (b) Improvements. All buildings, structures, betterments and other improvements of any nature now or hereafter situated in whole or in part upon the Land or on the Appurtenances, regardless of whether physically affixed thereto or severed or capable of severance therefrom (the "Improvements"). (c) Tangible Property. All of Mortgagor's right, title and interest, if any, in and to all fixtures, equipment and tangible personal property of any nature whatsoever that is now or hereafter (i) attached or affixed to the Land, the Appurtenances, or the Improvements, or (ii) situated upon or about the Land, the Appurtenances and/or the Improvements, regardless of whether physically affixed thereto or severed or capable of severance therefrom, or (iii) used, regardless of where situated, if used, usable or intended to be used, in connection with any present or future use or operation of or upon the Land. The foregoing includes: all goods and inventory, all heating, air conditioning, lighting, incinerating and power equipment; all engines compressors, pipes, pumps, tanks, motors, conduits wiring, and switchboards; all plumbing, lifting, cleaning, fire prevention, fire extinguishing, refrigerating, ventilating, and communications and public address apparatus; all signage and recreational amenities including, without limitation, swimming pools, exercise equipment, tennis courts, clubhouse furnishings or saunas; all boilers, furnaces, oil burners, vacuum cleaning systems, elevators and escalators; all stoves, ovens, ranges, disposal units, dishwashers, water heaters, exhaust systems, refrigerators, cabinets, and partitions; all rugs, draperies and carpets; all laundry equipment; all building materials; all furniture (including, without limitation, any outdoor furniture), furnishings, office equipment and office supplies; and all additions, accessions, renewals, replacements and substitutions of any or all of the foregoing. The property interests encumbered and described by this Paragraph are called the "Tangible Property" in this Mortgage. (d) Rents. All rents, issues, incomes and profits in any manner arising from the Land, Improvements, Appurtenances or Tangible Property, or any combination thereof, including Mortgagor's interest in and to all leases of whatsoever kind or nature, licenses, franchises and concessions of or relating to all or any portion of the Land, Appurtenances, Improvements or Tangible Property, or the operation thereof, whether now existing or hereafter made, including all amendments, modifications, replacements, substitutions, extensions, renewals or consolidations thereof. The property interests encumbered and described in this subparagraph are called the "Rents" in this Mortgage. 2 3 (e) Secondary Financing. Except as expressly permitted pursuant to Paragraph 38 hereof, all of Mortgagor's right, power or privilege to further encumber any of the Collateral described in this Paragraph 1, it being intended by this provision to divest Mortgagor of the power to encumber or to grant a security interest in any of the Collateral as security for the performance of an obligation, except for "Permitted Encumbrances," as defined in Paragraph 5 herein. (f) Proceeds. All proceeds of the conversion, voluntary, or involuntary, of any of the property encumbered by this Mortgage into cash or other liquidated claims, or that are otherwise payable for injury to or the taking or requisitioning of any such property, including all judgments, settlements and insurance and condemnation proceeds as provided in this Mortgage. (g) Contract Rights. All of Mortgagor's right, title and interest in and to any and all contracts or leases, written or oral, express or implied, now existing or hereafter entered into or arising, in any matter related to the improvement, use, operation, sale, conversion or other disposition of any Interest in the Land, Appurtenances, Improvements, Tangible Property or the Rents, or any combination thereof, including all tenant leases, sales contracts, reservation deposit agreements, any and all deposits, prepaid items, and due to become due thereunder; and including, without limitation, contracts pertaining to maintenance, on-site security service, elevator maintenance, landscaping services, building or project management, marketing, leasing, sales and janitorial services; Mortgagor's interests as lessee in equipment leases, including telecommunications, computers, vending machines, model furniture, televisions, laundry equipment; and Mortgagor's interests in construction contracts or documents (including architectural drawings and plans and specifications relating to the Improvements), service contracts, use and access agreements, advertising contracts and purchase orders. The property interests encumbered and described in this Paragraph are called the "Contract Rights" in this Mortgage. Notwithstanding the foregoing, Mortgagee will not be bound by any of Mortgagor's obligations under any of the foregoing contracts unless and until Mortgagee elects to assume any of such contracts or leases in writing. (h) Name. All right, title and Interest of Mortgagor in and to all trade names, project names, logos, service marks, trademarks, goodwill, and slogans now or hereafter used in connection with the operation of the Mortgaged Property. (i) Other Intangibles. All contract rights, commissions, money, deposits, certificates of deposit, letters of credit, documents, instruments, chattel paper, accounts, and general intangibles as such term from time to time are defined in the Uniform Commercial Code as adopted by the State of Florida (the "Uniform Commercial Code") in any manner related to the construction, use, operation, sale, conversion or other disposition (voluntary or involuntary) of the Land, Appurtenances, Improvements, Tangible Property, or Rents, including all construction plans and specifications, architectural plans, engineering plans and specifications, permits, government or quasi-governmental approvals, licenses, developer rights, vested rights under any Planned Unit Development or Development of Regional Impact or other project, zoning, or land use approval, insurance policies, rights of action and other choses in action. 3 4 The Land Appurtenances, Improvements and Tangible Property are collectively referred to as the "Mortgaged Property" in this Mortgage. The portion of the property encumbered by this Mortgage that from time to time consists of intangible personal property, except for the Rent, is called the "Intangible Property" in this Mortgage. The Mortgaged Property, Rents, Intangible Property and any other property interests encumbered hereby are hereinafter referred to collectively as the "Collateral". Wherever used in this Mortgage, the use of the terms, "Mortgaged Property," "Rents". "Intangible Property," and "collateral" means and includes all or any portion thereof applicable to the context. Notwithstanding the grant of Mortgagor's interest in the Rents and Contract Rights above, so long as no Default shall exist hereunder or under any of the other Loan Documents, Mortgagor shall have a license to collect and receive all incomes arising from the operation, ownership, and maintenance of the Mortgaged Property, Rents and Contract Rights, but not more than one (1) month prior to accrual. 2. SECURITY AGREEMENT. To the extent any of the Collateral encumbered by this Mortgage from time to time constitutes personal property subject to the provisions of the Uniform Commercial Code, this Mortgage constitutes a "Security Agreement" for all purposes under the Uniform Commercial Code. Without limitation, Mortgagee, at its election, upon the occurrence of a Default under this Mortgage, will have all rights, powers, privileges and remedies from time to time available to a secured party under the provisions of the Uniform Commercial Code with respect to the Collateral. The names and addresses of debtor and secured party are as shown for Mortgagor and Mortgagee, respectively, on the signature pages hereof. The remedies for any violation of the covenants, terms, and conditions of the security agreement herein contained shall be (i) as prescribed herein, or (ii) as prescribed by general law, or (iii) as prescribed by the specific statutory provisions now or hereafter enacted and specified in the Uniform Commercial Code, all at Mortgagee's sole election. Mortgagor and Mortgagee agree that the filing of financing statement(s) in the records normally having to do with personal property shall never be construed as in anywise derogating from or impairing this declaration and hereby stated intention of Mortgagor and Mortgagee that everything used in connection with the production of income from the Collateral or adapted for use therein or which is described or reflected in this Mortgage, is, and at all times and for all purposes and in all proceedings both legal or equitable shall be, regarded as part of the real estate irrespective of whether (i) any such item is physically attached to the Improvements, (ii) serial numbers are used for the better identification of certain items capable of being thus identified in a recital contained herein, or (iii) any such item is referred to or reflected in any financing statement(s) so filed at any time. Similarly, the mention in any financing statement of the rights in. or the proceeds of, any fire, hazard or liability insurance policy, or any award in eminent domain proceedings for a taking or for loss of value, or Mortgagor's interest as lessor in any present or future lease, or rights to income growing out of the use of the Mortgaged Property, whether pursuant to a lease or otherwise, shall not be construed as altering any of Mortgagee's rights as determined by this Mortgage, or otherwise available at law or in equity, or impugning the priority of this Mortgage or the Loan Documents, or both, but such mention in any financing statement is declared to be for Mortgagee's protection if, as, and when any court holds that notice of Mortgagee's priority of interest. to be effective against a particular class of 4 5 persons, including the federal government and any subdivision or entities of the federal government, must be perfected in the manner required by the Uniform Commercial Code. Mortgagor covenants and agrees that Mortgagor will furnish Mortgagee with notice of any change in name, identity, or organizational structure, mailing address, residences or principal place of business thirty (30) days prior to the effective date of any such change. Mortgagor will promptly execute any financing statements or other instruments deemed necessary by Bank to prevent any filed financing statement from becoming misleading or losing its perfected status or to reinstate any lapsed financing statement. 3. AFTER-ACQUIRED PROPERTY. Without the necessity of any further act of Mortgagor or Mortgagee, the lien of and security interest created by this Mortgage automatically will extend to and include (i) any and all renewals, replacements, substitutions, accessions, proceeds, products, additions or after-acquired property for or to the Collateral, and (ii) any and all monies, proceeds and other property that from time to time, either by delivery to Mortgagor or by any instrument (including this Mortgage) may be subjected to such lien and security interest by Mortgagor or by anyone on behalf of Mortgagor, or with the consent of Mortgagor, or which otherwise may come into the possession or otherwise be subjected to the control of Mortgagee or Mortgagor pursuant to this Mortgage or the other Loan Documents. 4. DEBT. Mortgagor is justly indebted to Mortgagee in the principal amount of Nine Million Dollars ($9,000,000.00) as evidenced by that certain Promissory Note of even date herewith made by Mortgagor payable to the order of Mortgagee and maturing as stated in said Note, unless such maturity is accelerated or extended (as provided in said Note), which Note, together with any and all renewals, replacements, extensions, modifications, substitutions. future advances, and any and all other certificates or evidence of indebtedness evidenced by said Note is herein called the "Note". Mortgagor's obligations described below are secured, among other things, by the collateral described in this Mortgage. which term includes any and all amendments, extensions, renewals, replacements, substitutions, modifications and consolidations of this Mortgage, and may also from time to time be secured by other collateral described in written documents. The Mortgage and such other documents as may exist on the date hereof or may exist hereafter are referred to as the "Security Documents," which term, as defined in the Note, includes any and all financing statements, letters of credit, assignments, agreements, supplements, and riders made and delivered in connection with the Note and this Mortgage, and any and all amendments, modifications, extensions, renewals, replacements, substitutions and consolidations thereof or thereto. The Security Documents, the Note, and all documents between Mortgagor and Mortgagee are referred to collectively as the "Loan Documents" The Note, the Mortgage and the Loan Documents shall always be taken and read together as constituting part of one transaction. The obligations of Mortgagor secured by the Security Documents arising pursuant to the Loan Documents are as follows and are called the "Debt" in this Mortgage and the other Loan Documents: 5 6 (a) Loan Documents. Mortgagor's payment or performance of all obligations imposed upon Mortgagor by the Loan Documents; and (b) Advances. All sums advanced by Mortgagee to or for the benefit of Mortgagor in the manner provided in the Loan Documents, or for the protection of the security of the Collateral, including, without limitation, all sums advanced pursuant to this Mortgage, including advances for repairs, maintenance, insurance, taxes, or assessments; and (c) Costs. All costs, expenses, losses, damages and other charges sustained or incurred by Mortgagee because of (i) Mortgagor's default in payment or performance, as the case may be, of any provision contained in the Loan Documents; (ii) defense of actions instituted by Mortgagor or a third party against Mortgagee arising out of or related to the Loan, or in the realizing upon, protecting, perfecting, defending, or (iii) actions brought or defended by Mortgagee enforcing Mortgagee's security interest in the Collateral. All of these costs and expenses include reasonable attorneys' fees, paralegals' fees, or legal assistants' fees. whether incurred with respect to collection, litigation, bankruptcy proceedings, interpretation, dispute, negotiation, trial, appeal, defense of actions instituted by a third party against Mortgagee. or enforcement of any judgment based on the Loan Documents, whether or not suit is brought to collect such amounts or to enforce such rights or, if brought, is prosecuted to judgment. (d) Miscellaneous Expenses. All costs and expenses incurred by Mortgagee in connection with the Loan, whether prior to or at closing or during the term thereof, including, without limitation, hazard and other insurance required by the Loan Documents, surveys, brokerage commissions and claims of brokerage, ad valorem and personal property taxes, documentary stamp taxes and intangible taxes, attorneys' fees, consultant fees, architect's fees, construction consultant's fees, environmental surveys or assessments, and recording charges. (e) Indemnities. All costs, expenses, and amounts arising under or pursuant to any indemnity contained within the Loan Documents or in any separate agreement executed by Mortgagor in favor of Mortgagee. 5. TITLE WARRANTIES. Subject to the Permitted Encumbrances (as hereinafter defined), Mortgagor covenants with Mortgagee that: (i) Mortgagor is indefeasibly seized of the Land and Improvements in fee simple, has good and marketable title to the Collateral and has full power, lawful right and authority to convey the same in fee simple and to grant Mortgagee a perfected first lien security interest in the Collateral, and (ii) the Collateral is free and clear of all liens, encumbrances, restrictions, and security interests of any nature except for those permitted encumbrances which Mortgagee has previously approved, as set out in Exhibit B attached hereto and incorporated herein by reference, which are referred to as "Permitted Encumbrances" in this Mortgage. 6. LIENS. Mortgagor will not create or permit to be created, or to remain, and will promptly discharge at Mortgagor's expense any and all liens or encumbrances upon, or security 6 7 interests in, the Collateral, or any combination thereof, whether consensual, common law, statutory, voluntary, involuntary, or arising by operation of law, except Permitted Encumbrances. Notwithstanding the foregoing, and except for any construction liens, Mortgagor may contest the amount, validity and enforceability of any involuntary or nonconsensual lien, encumbrance or security interest, including those arising by operation of law, in the manner provided in Paragraph 8 below. If any construction lien is filed against the Mortgaged Property, Mortgagor agrees to discharge or otherwise remove such lien by bond or otherwise, within ten (10) days of imposition of same, but may thereafter contest the amount or validity of such lien as provided in Paragraph 8 below. 7. TAXES AND OTHER IMPOSITIONS. Mortgagor will pay or cause to be paid, when due (i) all property taxes, assessments, water, sewer, utility and other rents, rates and charges, including all excises, taxes, levies, license fees, permit fees, impact fees, connection fees, and other fees and charges, whether general or special, ordinary or extraordinary, foreseen or unforeseen, that may be assessed, levied or imposed upon the Collateral, or otherwise arising with respect to the occupancy, use, possession or disposition thereof, whether or not the failure to pay the same might result in the creation of a lien upon the Collateral, or any combination thereof, (ii) all franchise, excise and other taxes, fees and charges assessed, levied or imposed with respect to Mortgagor's right to do business in the State of Florida and the political subdivisions thereof, (iii) all taxes and fees (except for Mortgagee's state and federal income taxes) that may be levied by the United States of America or any state or political subdivision thereof, upon Mortgagee or Mortgagor in connection with or upon the Loan Documents, or the Debt or its payment, or collection, or any combination thereof (including all documentary stamp taxes and intangible taxes plus any penalties and interest charged for the late payment of any such taxes); and (iv) all lawful claims and demands of contractors, subcontractors, mechanics, laborers, materialmen and other lienors which, if unpaid, might result in the creation of a lien upon the Collateral. The sums payable under this Paragraph are called "Impositions". Nothing contained in this Paragraph will require the payment of any Imposition so long as the amount, validity or enforceability thereof is contested by appropriate proceedings as provided in Paragraph 8 below. With respect to state and local real and tangible personal property taxes, however, Mortgagor will pay same and will furnish Mortgagee with copies of the receipts for each such payment without demand at least thirty (30) days prior to the date each of such taxes will become delinquent, and any contest of the same must be by a suit or other proceeding for a refund. Nothing contained in this Paragraph shall prohibit Mortgagor from paying Impositions in installments where such method of payment is permitted by law. With respect to all other Impositions, Mortgagor will furnish Mortgagee with proof of such payment upon demand. If any payment required to be made by Mortgagor by this Paragraph is prohibited by law, with the result that Mortgagee becomes liable for its payment, then the Debt will immediately become due and payable, at Mortgagee's option. 8. CONTESTS. Mortgagor may contest, by any and all appropriate administrative, trial or appellate proceedings, or any combination thereof, and in Mortgagee's name, if required by law, the amount, validity, enforceability or application of any Imposition that Mortgagor is required to pay or perform to any person or entity other than Mortgagee by any provision of this Mortgage or the other Loan Documents if and only for so long as: (i) Mortgagor notifies Mortgagee in writing of its intent to contest the Imposition; (ii) such contest suspends the collection or enforcement of the 7 8 item(s) contested; (iii) no part of the Collateral will be subject to loss, sale or forfeiture before final determination of any such contest; (iv) neither Mortgagor nor Mortgagee will be subject to any criminal liability; (v) Mortgagor furnishes such security as may be required by law in connection with each such contest; (vi) the value, usefulness and marketability of the Collateral will not be adversely impaired by any such contest; (vii) Mortgagor otherwise continues to pay and perform, as the case may be, the Debt and Mortgagor's obligations under this Mortgage; (viii) Mortgagor otherwise is not in default under any provision of the Loan Documents; (ix) each such contest is continuously prosecuted diligently to final determination; (x) Mortgagor pays or causes to be paid, and defends, indemnifies and holds Mortgagee harmless of and from any and all losses, judgments, decrees and costs (including all reasonable attorneys' fees) incurred in connection with each such contest; (xi) Mortgagor, promptly following final determination of each such contest, fully pays and discharges all amounts that may be levied, assessed, charged, imposed or otherwise determined to be payable, together with all penalties, fines, interests, costs and expenses, and otherwise complies with such final determination, at Mortgagor's sole cost and expense; and (xii) such liens are not filed against the Mortgaged Property pursuant to Chapter 713, Florida Statutes, in which event such liens must be discharged or deferred to bond pursuant to Paragraph 6 above before Mortgagor contests such liens. So long as Mortgagor complies with the foregoing and Mortgagee is promptly reimbursed for all costs and expenses incurred, Mortgagee will cooperate with Mortgagor in connection with any such contest. 9. INSURANCE. Until the Debt shall have been discharged by Mortgagor, Mortgagor shall maintain, at Mortgagor's cost and expense, the following insurance coverages in full force and effect at all times: (a) Hazard and Property Insurance. Mortgagor will obtain and keep in full force (i) "All Risk" type property insurance to include as a minimum the perils of fire and extended coverage, vandalism, water damage, collapse, earthquake, and law and ordinance (demolition and increased cost of construction) coverage in an amount equal to 100% of the full insurable value of the Improvements (i.e., total cost less value of land and nondestructibles such as foundations, underground utilities, etc.); and (ii) personal property insurance as required by Lender in an amount equal to 100% of the full insurable replacement value of the Tangible Property; and (iii) business income insurance in an amount equal to (y) annual net income plus continuing normal operating expenses, or (z) one year's rental value including, but not limited to rental income from all Leases or sub-leases which are assigned to Lender; and (iv) flood insurance in the maximum amount available unless Lender is furnished a surveyor's certificate indicating that the improvements are not located inside the special flood hazard Boundary Map or in Flood Insurance Rate Map (FIRM) Zones A, AE, A1-A30, AH, A), A99, VE, V1-V30 OR M). (b) Liability Insurance, Mortgagor will obtain and keep in full force a "Broad Form Comprehensive General Liability" insurance coverage for both Mortgagor and any contractor performing services to the Mortgaged Property in the minimum coverage amount of One Million Dollars ($1,000,000) per occurrence and combined single limit ("CSL") of Five Million Dollars ($5,000.000). 8 9 (c) Other Insurance. Boiler and machinery insurance, worker's compensation insurance, wind damage insurance, and other insurance coverages as Mortgagee may reasonably require. The policy or policies of insurance shall (i) be from companies and in coverage amounts acceptable to Mortgagee, (ii) contain a standard mortgagee clause in favor of Mortgagee naming Mortgagee as a mortgagee and including a lender's loss payee clause in such policy, as applicable (iii) not be terminable or modified without thirty (30) days' prior written notice to Mortgagee, and (iv) be evidenced by original policies or certified copies of policies deposited with Mortgagee, as Mortgagee may elect, to be held by Mortgagee until the Debt shall have been fully paid and discharged. Mortgagor shall furnish Mortgagee satisfactory evidence of payment of all premiums required and similar evidence of renewal or replacement coverage not later than thirty (30) days prior to the date any coverage will expire. Each insurance policy or endorsement required herein shall be written by an insurer having a rating not less than "A-XII" Best's Rating according to the most current edition of Best's Key Rating Guide as determined at the time of the initial policy and at all times during the term hereof. All policies shall indicate that notices related to such insurance shall be sent to Mortgagee at: The Wackenut Corporation 1500 San Remo Avenue Coral Gables, Florida If any loss occurs with respect to the Mortgaged Property, Mortgagee is hereby appointed attorney-in-fact for Mortgagor to make proof of loss if Mortgagor fails to make the same punctually, and in such event to give a receipt for any proceeds collected under such policies. Mortgagor will promptly give written notice to Mortgagee of any loss or damage to the Mortgaged Property, and will not adjust or settle any such loss without Mortgagee's prior written consent, which consent shall not be unreasonably withheld or delayed. Upon any Default by Mortgagor under this Mortgage, all right, title and interest of Mortgagor in and to all such insurance policies then in force, including any and all unearned premiums and existing claims, will inure to Mortgagee, which, at its option, and as attorney-in-fact for Mortgagor, may then make, settle and give binding acquittances for claims under all such policies, and may assign and transfer such policies or cancel or surrender them, applying any unearned premium in such manner as Mortgagee may elect. The foregoing appointment of Mortgagee as attorney-in-fact for Mortgagor is coupled with an interest, and is irrevocable. Notwithstanding the occurrence of any casualty or the availability of any insurance proceeds, Mortgagor will pay the Debt in the manner required by the Loan Documents. 10. CONDEMNATION. If all or any part of the Collateral, or any interest therein or right accruing thereto, is taken as a result of, or in lieu or in anticipation of, the exercise of the right of condemnation or eminent domain, or by reason of the temporary requisition of the use or occupancy of the Mortgaged Property, in any event by any government or quasi-governmental 9 10 authority, civil or military, or any other party entitled to exercise such powers by law, general or special, or is devalued or otherwise adversely affected by any of the foregoing actions, all proceeds payable with respect to any such action are assigned to Mortgagee and shall be paid to Mortgagee. Mortgagee shall be under no obligation to question the amount of any such award or compensation and may accept the same in the amount in which the same shall be paid. The proceeds of any award or compensation so received shall, at the option of the Mortgagee, either be applied to the payment of the Debt or be paid over to the Mortgagor for the restoration of the Improvement. Mortgagor, immediately upon obtaining knowledge of the institution or threatened institution, of any proceedings for the Mortgaged Property, or any part thereof, by condemnation or eminent domain, will notify the Mortgagee of the pending of such proceedings. Mortgagee shall have the right to intervene and participate in any proceedings for and in connection with any taking referred to in this section. Mortgagor shall not enter into any agreement for the taking of the Mortgaged Property or any part thereof with any person or persons authorized to acquire the same by condemnation or eminent domain, unless the Mortgagee shall have consented thereto in writing. Any of the foregoing actions are sometimes called a "condemnation" or "taking" in this Mortgage and the other Loan Documents. Such proceeds include, without limitation, severance damages, damages arising from the change of grade of any street or the access thereto, the taking of air rights and damages caused by noise, pollutants and other emissions. Notwithstanding any such taking or other injury or decrease in value, or the availability of any proceeds for any of the foregoing, Mortgagor shall continue to pay the Debt in the manner required by the Loan Documents. Mortgagee's rights under this Paragraph will survive the foreclosure or other enforcement of this Mortgage, and Mortgagee will have the right to receive and retain all proceeds to the extent of any deficiency which exists upon such foreclosure or other enforcement, together with legal interest thereon, and to the extent of the reasonable counsel fees, costs and disbursements incurred by Mortgagee in connection with the collection of such proceeds. Such right shall exist whether or not a deficiency judgment shall have been sought or recovered or denied upon the Note. The remaining balance of such proceeds, if any, will inure to the benefit of the party entitled thereto by applicable law. 11. APPLICATION OF INSURANCE PROCEEDS AND AWARDS. The Mortgagor will promptly give the Mortgagee written notice of any damage to or destruction of the Mortgaged Property or any part thereof, generally describing the nature and extent of such damage or destruction and the Mortgagor's best estimate of the cost of restoring the Mortgaged Property. The Mortgagee may, at its sole option, apply all amounts recovered under any insurance policy required to be maintained by the Mortgagor hereunder in any one or more of the following ways: (a) to the payment of the reasonable costs and expenses incurred by the Mortgagee in obtaining such insurance proceeds, including the fees and expenses of attorneys and insurance and other experts and consultants, the costs of litigation, arbitration, mediation, investigations and other judicial, administrative or other proceedings and all other out-of-pocket expenses; (b) to the payment of any of the Debt other than indebtedness with respect to the Note at the time outstanding; (c) to the payment of the principal of the Note and any interest accrued and unpaid thereon, without regard to whether any portion or all of such amounts shall be matured or unmatured, together with interest at the default interest rate on any overdue principal and (to the extent permitted by applicable law) interest; and, in case such amount shall be insufficient to pay in full all such amounts, then such amounts shall be applied, first, 10 11 to the payment of all amounts of interest accrued on the Note and unpaid, without preference or priority of any payment of interest over any other payment of interest or of any other Note, and, second, to the payment of all amounts of principal at the time outstanding, without preference or priority of any installment or amount of principal over any other installment or amount of principal or of any Note over any other Note, but otherwise in such manner and order as the Mortgagee shall in its sole discretion determine; (d) to fulfill any of the other covenants contained herein as the Mortgagee may determine; (e) release to the Mortgagor for application to the cost of restoring the Mortgaged Property; or (f) release to the Mortgagor. In the event of a foreclosure of this Mortgage, the purchaser of the Mortgaged Property shall succeed to all the rights of the Mortgagor, including any right to unearned premiums, in and to all policies of insurance assigned and delivered to the Mortgagee. Notwithstanding anything to the contrary contained in Paragraph 11 of the Mortgage, and upon the terms and conditions set forth below, in the event of damage or destruction to the buildings now or hereafter situated on the Mortgaged Property all insurance money paid to Mortgagee on account of such damage or destruction, less the actual costs, fees and expenses, if any, incurred in connection with adjustment of the loss, shall be released by Mortgagee to be applied to payment (to the extent of actual restoration performed) of the cost of restoring, repair, replacing or rebuilding the Mortgaged Property substantially to its value immediately prior to such damage or destruction (the "Restoration"), including the cost of temporary repairs. Insurance proceeds released for Restoration shall be disbursed from time to time as such Restoration progresses subject to the following conditions: (a) Mortgagor is not then in Default under and no event of Default then exists with respect to any of the terms, covenants and conditions under the Note or the Mortgage; and (b) The cost of Restoration is less than 50% of the insurable value of the building or buildings prior to such damage or destruction. (c) Mortgagee shall first be given satisfactory proof that by the expenditure of such proceeds, the Mortgaged Property will be fully restored, free and clear of all construction liens, or, if such proceeds are insufficient to restore or rebuild the Mortgaged Property, Mortgagor shall either (i) deposit promptly with Mortgagee funds which, together with such proceeds, shall be sufficient to complete Restoration, or (ii) provide other assurance satisfactory to Mortgagee that Restoration will be completed; and (d) In the event Mortgagor shall fail either to pursue Restoration diligently to completion or to complete Restoration within a reasonable time, Mortgagee, at its option, may complete Restoration for or on behalf of Mortgagor and for such purpose may do all necessary acts. 11 12 In the event any of the said conditions are not or cannot be satisfied, then Mortgagee may apply such proceeds to payment of the Debt secured by the Mortgage. Under no circumstances shall Mortgagee become personally liable for the fulfillment of the terms, covenants and conditions contained in any of the leases of the Mortgaged Property with respect to the matters referred to in this paragraph nor obligated to take any action to restore the Mortgaged Property. Mortgagee shall not be obligated to see to the proper application of any funds released hereunder, nor shall any amount so released or used be deemed a payment on the Debt secured by the mortgage. Upon (i) completion of all the Restoration in a good workmanlike manner and substantially in accordance with the plans and specifications therefor, if any, approved by Mortgagee and (ii) receipt by Mortgagee of satisfactory evidence that the Restoration has been completed and paid for in full (or, if any part of such Restoration has not been paid for, adequate security for such payment shall exist in form satisfactory to Mortgagee), any balance of the insurance proceeds at the time held by Mortgagee shall be paid to Mortgagor or its designee provided Mortgagor is not then in Default under and no event of Default then exists with respect to any of the terms or provisions of the Note or the Security Documents. If, while any insurance proceeds are being held by Mortgagee to reimburse Mortgagor for the cost of Restoration of the Mortgaged Property, Mortgagee shall be or become entitled to, and shall, accelerate the Debt secured by the Mortgage upon the terms and conditions set forth in the Note, Mortgagee shall be entitled to apply all such proceeds then held by it in reduction of the Debt secured by the Mortgage and any excess held by it over the amount of the Debt secured by the Mortgage shall be returned to Mortgagor or any party entitled thereto. 12. MAINTENANCE, REPAIRS, AND RECONSTRUCTION. (a) Maintenance and Repairs. Mortgagor, at its sole cost, shall make all repairs, renewals, replacements, servicing and reconstruction that are necessary to maintain the Mortgaged Mortgaged Property in good order, condition and repair. Mortgagor shall establish (and set aside in segregated deposits) reserve funds in amounts acceptable to Mortgagee for tenant improvements and for replacements, repairs and capital expenditures in accordance with the provisions of the Post-Closing Escrow Agreement between Mortgagor and Mortgagee of even date herewith. Immediately following the occurrence of any casualty or other loss, Mortgagor promptly will undertake all restoration required or desirable and will pursue it diligently to completion. Mortgagor shall (i) not strip, waste, remove or demolish any portion of the Mortgaged Property, nor suffer or permit any such action; (ii) promptly comply with all laws, governmental regulations and public or private restrictions or easements, or both, of any kind affecting the Mortgaged Property or requiring any alterations or improvements to be made thereon, and (iii) not commit, suffer or permit any act upon the Mortgaged Property in violation of any law, subject to Mortgagor's right to contest the same in good faith to conclusion, as provided in Paragraph 8 of this Mortgage. If any public agency or authority requires or commences any proceedings for the demolition or removal, or both, of any improvements or portions thereof comprising the Mortgaged Property due to non-compliance with health, safety, fire or building codes, then, unless Mortgagor undertakes to contest such action in the 12 13 manner provided in Paragraph 8 above and pursues such contest to a successful conclusion, such action will constitute a Default under this Mortgage. Mortgagor will not, without Mortgagee's prior written consent, (i) make any material alterations, additions or improvements of or to the Mortgaged Property; (ii) make any material change in the general nature of the use or occupancy of the Mortgaged Property; (iii) institute or join or acquiesce in any action to change the existing zoning or land use classification of the Mortgaged Property, or (iv) grant easements or licenses affecting the use or operation of the Mortgaged Property. Mortgagee and any persons authorized by Mortgagee may enter the Mortgaged Property at all reasonable times with prior notice for inspections or for any other lawful purpose. If Mortgagor fails to comply with the requirements of this Paragraph, then Mortgagee, without waiving the option to foreclose, may take some or all measures Mortgagee reasonably deems necessary or desirable for the maintenance, repair, preservation or protection of the Mortgaged Property, and any expenses reasonably incurred by Mortgagee in so doing shall become part of the Debt secured hereby, and shall, at the option of Mortgagee, become immediately due and payable, and shall bear interest at the Default Rate specified in the Note. Mortgagee shall have no obligation to care for or maintain the Mortgaged Property, or, having taken some measures therefor, to continue same or take other measures. (b) Reconstruction. The Mortgagor shall promptly repair, restore, replace or rebuild any part of the Mortgaged Property, now or hereafter encumbered by this Mortgage which may be affected by any condemnation proceeding or which may otherwise become damaged, destroyed, lost or unsuitable for use. In the event the Mortgaged Property or any part thereof, if damaged or destroyed by fire or other casualty, the Mortgagor shall immediately notify the Mortgagee, in writing, of such damage or destruction. The Mortgagor shall not cause or permit anything to be done which would or could increase the risk of fire or other hazard to the Mortgaged Property, or any part thereof, or which would or could result in an increase in any insurance premiums payable with respect to the Mortgaged Property, or which would or could result in the cancellation of any insurance policy carried with respect to the Mortgaged Property. No part of the Mortgaged Property, including, but not limited to, any building, structure, water system, sewer system, parking lot, driveway, landscape scheme, timber or other ground improvement, equipment or other property, now or hereafter mortgaged, shall be removed, demolished or materially altered without the prior written consent of the Mortgagee. No top soil, sand, sod, loam, clay or gravel shall be mined, stripped, or removed from the Mortgaged Property without the written consent of the Mortgagee. 13. ADVANCES. If Mortgagor defaults in the observance or performance of any of the provisions of the Loan Documents, including but not limited to obtaining and maintaining insurance pursuant to Paragraph 9, paying Impositions pursuant to Paragraph 7, and maintaining the Mortgaged Property pursuant to Paragraph 12, then Mortgagee, without waiving or otherwise impairing any other of its rights or remedies, at its sole option and without obligation to do so, and without demand upon Mortgagor, may make any such payment or take such action as Mortgagee deems necessary or appropriate to correct such Default, or to protect the security of the Collateral encumbered by the Loan Documents. All payments so made, together with all costs and expenses so incurred, will be added to the principal amount due under the Note and thereafter will bear interest at the rate then 13 14 payable as provided for in the Note, and will be secured by the lien and security interest granted by the Security Documents. For the foregoing purposes, Mortgagee is authorized to (a) enter upon the Mortgaged Property; (b) appear in and defend any action or proceeding purporting to affect the security of this Mortgage or the rights or powers of Mortgagee hereunder, (c) pay, purchase, contest or compromise any encumbrance, charge or lien that in the reasonable judgment of Mortgagee appears to adversely affect the Collateral; and (d) take whatever action Mortgagee, in its discretion, deems necessary or appropriate in exercising any such powers. Notwithstanding the foregoing, Mortgagor immediately, upon Mortgagee's demand, will pay all sums so expended by Mortgagee with interest as stated above. 14. [THIS SPACE INTENTIONALLY LEFT BLANK] 15. [THIS SPACE INTENTIONALLY LEFT BLANK] 16. [THIS SPACE INTENTIONALLY LEFT BLANK] 17. ASSIGNMENT OF RENTS, LEASES, PROFITS AND CONTRACT RIGHTS. Pursuant to Paragraph I of this Mortgage, Mortgagor has irrevocably assigned and set over unto Mortgagee all right, title, and interest of Mortgagor in and to the Rents and Contract Rights (including all leases and sales contracts now or hereafter existing relating to the Mortgaged Property) as security for the Debt, together with the right to collect and enforce the same; provided, however, so long as there shall be no Default under the Loan Documents, Mortgagor has been granted a license to collect and receive all Rents assigned hereunder in accordance with Paragraph 1. Neither these assignments nor Mortgagee's enforcement of the provisions of these assignments (including the receipt of the Rents) will operate to subordinate the lien of this Mortgage to any of the rights of any lessee or purchaser under any lease or sales contract of the Mortgaged Property, or to subject Mortgagee to any liability to any such lessee or purchaser for the performance of any obligations of Mortgagor under any such lease or sales contract unless and until Mortgagee agrees to such subordination or assumes such liability by an appropriate written instrument. All right, title and interest of each such lessee or purchaser in and to the Mortgaged Property, whether arising by virtue of any such lease, contract or otherwise, at all times will be and remain subject, subordinate and inferior to the lien of this Mortgage and all rights, remedies, powers and privileges of Mortgagee arising under or by virtue of any of the Loan Documents. The assignments of Rents and Contract Rights (including leases) contained in this Mortgage are intended to provide Mortgagee with all the rights and remedies of mortgagees pursuant to Section 697.07, Florida Statutes, as may be amended from time to time. However, in no event shall this reference diminish, alter, impair, or affect any other rights and remedies of Mortgagee. Notwithstanding the foregoing, if Mortgagor shall have executed an Assignment of Rents constituting one of the Loan Documents, such Assignment of Rents is hereby incorporated herein by reference and shall control if in conflict with the provisions of this Mortgage. 14 15 18. LEASES AFFECTING MORTGAGED PROPERTY. The assignments contained in Paragraph I shall not be deemed to impose upon Mortgagee any of the obligations or duties of Mortgagor provided in any such lease (including, without limitation, any liability under the covenant of quiet enjoyment contained in any lease in the event that any tenant shall have been joined as a party defendant in any action to foreclose this Mortgage and shall have been barred and foreclosed thereby of all right, title and interest and equity of redemption in the Mortgaged Property or any part thereof), and Mortgagor will comply with and observe its obligations as landlord under all leases affecting the Mortgaged Property or any part thereof. Mortgagor has a license to collect the Rents, but shall not accept payment of rent more than one month in advance without the prior written consent of the Mortgagee, and only so long as there is no Default hereunder or under the other Loan Documents. Mortgagor shall receive the Rents in trust on Mortgagee's behalf, and Mortgagor covenants to apply same to the payment of taxes and assessments upon the Mortgaged Property, to the cost of insurance and maintenance and repairs, and to the payment of the Debt, before using any part of the Rents for any other purpose. Prior to a Default hereunder and demand by Mortgagee for delivery of security deposits held by Mortgagor or any agent of Mortgagor to Mortgagee or its designee, Mortgagor shall maintain all security deposits pursuant to the leases in a separate, identifiable account deposited with Mortgagee, or any other institution acceptable to Mortgagee, and in accordance with all applicable laws and regulations. Upon delivery of such security deposits to Mortgagee, or upon Mortgagee's enforcement of its security interest in such deposits, Mortgagee shall hold such security deposits pursuant to the terms of the leases in respect of which such deposits were obtained by Mortgagor and in accordance with applicable law; provided, however, in no event shall Mortgagee be liable to any lessee of any part of the Mortgaged Property for the return of any security deposit in any amount in excess of the amount delivered to Mortgagee by Mortgagor. Any security deposits held by Mortgagee shall not bear interest unless required by applicable law. Mortgagor will: (a) not collect any of the Rents arising or accruing under any lease in advance of the time when the same shall become due, other than as required to be paid in advance by the terms of any lease, but in no event more than one (1) month in advance; (b) not pledge, transfer, mortgage or otherwise encumber or assign any of Mortgagor's interest in the leases or any Rents arising or accruing therefrom except as expressly permitted pursuant to the provisions of Paragraph 38 below; (c) not waive, excuse, condone, discount, set-off, compromise, or in any manner release or discharge any tenant thereunder of and from any obligations, covenants, conditions and agreements by said tenant to be kept, observed and performed, including the obligation to pay the rents thereunder, in the manner at the place and time specified therein; (d) not cancel, terminate or consent to any surrender of any lease, nor modify, alter or change any of the terms thereof without the prior written consent of Mortgagee; (e) not consent to any assignment of or subletting under any lease, whether or not in accordance with the terms thereof, without the prior written consent of Mortgagee; and (f) not enter into, execute or deliver any leases without the prior written consent of Mortgagee. Mortgagee's approval of any of the leasing matters set forth in (c) through (f) above shall not be unreasonably withheld or delayed and any request for approval of any new leases shall be deemed appproved if Mortgagee fails to respond in writing within ten (10) days after the date of 15 16 submission to Mortgagee of the material, economic terms of any new leases, the identity of the proposed tenants and any financial information received by Mortgagee with respect to such proposed tenants. In the event any tenant of the Mortgaged Property should be the subject of any proceeding under the Federal Bankruptcy Code, as amended from time to time, or any other federal, state or local statue which provided for the possible termination or rejection of any of the leases assigned hereby, Mortgagor covenants and agrees that if any of the leases is so terminated or rejected, no settlement for damages shall be made without the prior written consent of Mortgagee, and any check in payment of damages for termination or rejection of any such lease will be made payable both to Mortgagor and Mortgagee. Mortgagor hereby assigns any such payment to Mortgagee and further covenants and agrees that upon the request of Mortgagee, it will duly endorse to the order of Mortgagee any such check, the proceeds of which will be applied to that portion of the Debt as Mortgagee may elect. Notwithstanding anything to the contrary contained in Paragraph 18 or in any of the Security Documents so long as Mortgagor is not in Default, Mortgagor shall have the right to enter into new leases, terminate, modify and otherwise deal with leases and the tenants under said leases in its normal course of business without obtaining Mortgagee's prior written approval of any such action, provided: (a) All new or replacement leases shall be on the form previously approved by Mortgagee; (b) Mortgagor shall promptly furnish Mortgagee with copies of all appropriate documents pertaining to such action taken with regard to existing, new or replacement leases; and (c) If execution of a new or replacement lease is involved, the rent payable under such lease shall be not less than the then prevailing rental rates for similar space for a similar term in similar buildings located in South Miami, Florida. The foregoing provisions shall only apply to leases of less than twenty-five thousand (25,000) square feet. 19. DEFAULT. The occurrence of any of the following (time being of the essence as to this Mortgage and all of its provisions) constitutes a "Default" by Mortgagor under this Mortgage and, at the option of Mortgagee, under the other Loan Documents: (a) Scheduled Payment. Mortgagor's failure to make any payment required by the Note when due. (b) Monetary Default. Mortgagor's failure to make any payment required by this Mortgage or the other Loan Documents when due. 16 17 (c) Other. Mortgagor's failure to perform any other obligation imposed upon Mortgagor by this Mortgage or the other Loan Documents within the time period therein specified, or as may be specified by Mortgagee, if in the sole opinion of Mortgagee such Default is curable. This provision shall not be construed to provide Mortgagor with any grace period in complying with any obligations imposed on Mortgagor by the terms of the Loan Documents except as expressly specified in Paragraph 20 below. (d) Representation. Any representation or warranty of Mortgagor contained in this Mortgage or in any certificate delivered pursuant hereto, or in any other instrument or statement furnished in connection herewith, proves to be incorrect or misleading in any materially adverse respect as of the time when the same shall have been made. (e) Bankruptcy. Mortgagor (i) files a voluntary petition in bankruptcy or a petition or answer seeking or acquiescing in any reorganization or for an arrangement, composition, readjustment, liquidation, dissolution, or similar relief for itself pursuant to the United States Bankruptcy Code or any similar law or regulation, federal or state relating to any relief for debtors, now or hereafter in effect; or (ii) makes an assignment for the benefit of creditors or admits in writing its inability to pay or fails to pay its debts as they become due; or (iii) suspends payment of its obligations or takes any action in furtherance of the foregoing; or (iv) consents to or acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator or other similar official of Mortgagor for all or any part of the Collateral or other assets of such party, or either; or (v) has filed against it an involuntary petition, arrangement, composition, readjustment, liquidation, dissolution, or an answer proposing an adjudication of it as a bankrupt or insolvent, or is subject to a reorganization pursuant to the United States Bankruptcy Code, an action seeking to appoint a trustee, receiver, custodian, or conservator or liquidator, or any similar law, federal or state, now or hereafter in effect, and such action is approved by any court of competent jurisdiction and the order approving the same shall not be vacated or stayed within thirty (30) days from entry; or (vi) consents to the filing of any such petition or answer, or shall fail to deny the material allegations of the same in a timely manner. (f) Judgments. (1) A final judgment, other than a final judgment in connection with any condemnation, and including any judgment or other final determination of any contest permitted by Paragraph 8 of this Mortgage, is entered against Mortgagor that (i) adversely affects the value, use or operation of the Collateral, or (ii) adversely affects, or reasonably may adversely affect, the validity, enforceability or priority of the lien or security interest created by this Mortgage or the other Loan Documents, or both; or (2) execution or other final process issues thereon with respect to the Collateral; and (3) Mortgagor does not discharge the same or provide for its discharge in accordance with its terms, or procure a stay of execution thereon, in any event within (30) days from entry, or Mortgagor shall not, within such period or such longer period during which execution on such judgment shall have been stayed, appeal therefrom or from the order, decree or process upon or pursuant to which such judgment shall have been entered, and cause its execution to be stayed during such appeal, or if on appeal such order, decree or process shall be affirmed and Mortgagor shall not discharge such judgment or provide for its discharge in accordance with its terms within 17 18 sixty (60) days after the entry of such order or decree or affirmance, or if any stay of execution on appeal is released or otherwise discharged. (g) Liens. Any federal, state or local tax lien or any claim of lien for labor or materials or any other lien or encumbrance of any nature whatsoever is recorded against Mortgagor or the Mortgaged Property and is not removed by payment or transferred to substitute security in the manner provided by law, within ten (10) days after notice thereof is received by Mortgagor or is not contested by Mortgagor in the manner permitted by Paragraph 8 above. (h) Leases. Mortgagor's default in the performance of its obligations as lessor under any lease of all or any portion of the Mortgaged Property, which default could result, in Mortgagee's judgment, in the termination of said lease provided that this provision shall only be applicable to default(s) by Mortgagor under one or more leases which, if terminated by reason thereof, would result in the surrender of at least 25,000 rentable square feet of space within the Mortgaged Property. (i) Other Notes or Mortgages. Mortgagor's default in the performance or payment of Mortgagor's obligations under any other note, or under any other mortgage encumbering all or any part of the Mortgaged Property, if the other mortgage is permitted by Mortgagee, whether such other note or mortgage is held by Mortgagee or by any other party. (j) Mortgagor Default Under Loan Documents. Mortgagor's default in the payment or performance of any of Mortgagor's obligations under any of the Loan Documents, including this Mortgage and any riders thereto. (k) Mortgagor's Continued Existence. Mortgagor shall cease to exist or to be qualified to do or transact business in the State in which the Mortgaged Property is located or be dissolved or shall be a party to a merger or consolidation, or shall sell all or substantially all of its assets, or the death of any individual being a Mortgagor. (l) Stock in Mortgagor. If, without the prior written consent of Mortgagee, any shares of stock of Mortgagor are issued, sold, transferred, conveyed, assigned, mortgaged, pledged, or otherwise disposed of so as to result in change of control of Mortgagor, whether voluntarily or by operation of law, and whether with or without consideration, or any agreement for any of the foregoing is entered into; or, if Mortgagor is a partnership, any general partnership interest or other equity interest in the partnership is sold, transferred, assigned, conveyed, mortgaged, pledged, or otherwise disposed of, whether voluntarily or by operation of law, and whether with or without consideration, or any agreement for any of the foregoing is entered into, or any general partner of Mortgagor withdraws from the partnership. (m) THIS SPACE IS INTENTIONALLY LEFT BLANK 18 19 (n) Transfer of Mortgaged Property or Ownership. Any sale, conveyance, transfer, assignment, or other disposition of all or any part of the Collateral or any ownership interest in Mortgagor in violation of Paragraph 29 below. (o) False Statement. Any material statement or representation of Mortgagor contained in the materials furnished to Mortgagee or prior or subsequent to the making of the loan secured hereby are discovered to have been false or incorrect or incomplete in any material respect. (p) Default Under Indemnity. Mortgagor shall default under any obligation imposed upon Mortgagor by any indemnity whether contained within any of the Loan Documents or otherwise. 20. REMEDIES. Upon the occurrence and continuance, if applicable, of any Default, Mortgagee may exercise any one or more of the following rights and remedies, in addition to all other rights and remedies otherwise available at law or in equity: (a) Other Documents. To pursue any right or remedy provided by the Loan Documents. (b) Acceleration. To declare the entire unpaid amount of the Debt together with all accrued and unpaid interest thereon immediately due and payable with interest to be due thereon at the Default Rate set forth in the Note. (c) Foreclosure. To foreclose the lien of this Mortgage and obtain possession of the Collateral, by any lawful procedure. (d) Code Rights. To exercise any right or remedy available to Mortgagee as a secured party under the Uniform Commercial Code as adopted by the State of Florida, as it from time to time is in force and effect, with respect to any portion of the Collateral then constituting property subject to the provisions of such Code; or Mortgagee, at its option, may elect to treat the Collateral as real property, or an interest therein, for remedial purposes. (e) Receiver. To apply, on ex parte motion, to any court of competent jurisdiction for the appointment of a receiver to take charge of, manage, preserve, protect, complete construction of, rent, and operate the Mortgaged Property and any of Mortgagor's business or businesses situated thereon, or any combination thereof, to collect the Rents; to make all necessary and needed repairs; to pay all taxes, assessments, insurance premiums and all other costs incurred in connection with the Mortgaged Property; and, after payment of the expenses of the receivership, including reasonable attorneys' fees and other costs and expenses related to the enforcement of the Security Documents, and after compensation to the receiver for any of the services described herein or pursuant hereto, to apply all net proceeds derived therefrom in reduction of the Debt or in such other maimer as the court shall direct. The appointment of such receiver shall be a matter of strict right to Mortgagee, regardless of the adequacy of the security or of the solvency of any party 19 20 obligated for payment of the Debt. AU expenses, fees and compensation incurred pursuant to any such receivership shall be secured by the lien of this Mortgage until paid. The receiver, personally or through agents, may exclude Mortgagor wholly from the Mortgaged Property and have, hold, use, operate, manage and control the Mortgaged Property and may, in the name of Mortgagor, exercise all of Mortgagor's rights and powers to maintain, construct, operate, restore, insure and keep insured the Mortgaged Property in such manner as such receiver deems appropriate. (f) Rents. After Mortgagee shall have given written notice to Mortgagor, to collect all rents, issues, profits, revenues, income, proceeds, or other benefits from the Collateral, or to pursue any remedy available under Chapter 697.07, Florida Statutes, as amended, supplemented, or superseded from time to time. (g) Other Security. To proceed to realize upon any and all other security for the Debt in such order as Mortgagee may elect; no such action, suit, proceeding, judgment, levy, execution or other process will constitute an election of remedies by Mortgagee or will in any manner alter, diminish or impair the lien and security interest created by this Mortgage or any other Security Documents unless and until the Debt is paid in full. (h) Advances. To advance such monies and take such other action as is authorized by Paragraphs 13 and 23 herein. Notwithstanding anything to the contrary contained in this Mortgage or the Security Documents, including without limitation the Note referred to therein, Mortgagee agrees that it shall not exercise any right or remedy provided for therein because of a Default by Mortgagor unless Mortgagee shall first have given written notice thereof to Mortgagor and Mortgagor shall have failed, in the event of a monetary Default as described in Paragraph 19(a) and (b), to pay the outstanding sums within a period of ten (10) calendar days after the giving of such notice of Default, or in the event of a non-monetary Default as described in Paragraph 19(c), Mortgagor shall have failed within a period of thirty (30) days after the giving of such notice of Default to cure the non-monetary default; provided that if the non-monetary Default cannot be cured within thirty (30) days and Mortgagor proceeds diligently with efforts to cure such default until it shall be fully cured within no more than sixty (60) days after the giving of such notice or such longer period as Mortgagee may specify, Mortgagee shall not exercise any right or remedy provided herein until such cure period shall expire; provided, further, that Mortgagee shall not be required to give any such notice or to allow any part of the cure period if (i) Mortgagor or any Guarantor shall have filed a petition in bankruptcy or for re-organization or a bill in equity or otherwise initiated proceedings for the appointment of a receiver of its or their assets and such appointment or such receivership is not terminated within thirty (30) days; or (ii) Mortgagee determines that its security may be imminently and materially threatened or impaired by reason of such Default. Furthermore, any notice and grace period requirements contained elsewhere in the Mortgage and Security Documents including the Note secured thereby shall run concurrently with the requirements contained in this Paragraph and not in addition thereto. 20 21 21. WAIVER OF CERTAIN RIGHTS. Mortgagor will not claim, take or insist upon any benefit or advantage of any present or future stay, extension, redemption or moratorium law that may affect Mortgagor's obligations hereunder, or any law providing for the valuation or appraisal of the Mortgaged Property or any portion thereof prior to any sale or sales that may be made under or by virtue of this Mortgage. Mortgagor, for itself and all who may claim under Mortgagor, waives, to the extent that it lawfully may, all rights to have the Mortgaged Property and any other security for the Debt marshalled upon any foreclosure or otherwise. Mortgagor hereby waives and renounces all homestead and exemption rights provided for by the laws of the United States of America and of any state, including Florida, in and to the Mortgaged Property as against the collection of the Debt, or any part thereof. 22. FURTHER ASSURANCES. Mortgagor, from time to time, will execute, acknowledge,subscribe and deliver to or at the direction of Mortgagee such documents and further assurances as Mortgagee may reasonably require for the purpose of evidencing, perfecting or confirming the lien and security interest created by this Mortgage, or the security intended to be afforded by the Loan Documents, or both. Without limitation of the foregoing, Mortgagor will defend, indemnify and hold Mortgagee harmless with respect to any suit or proceeding in which the validity, enforceability or priority of the lien or security interest, or both, is endangered or contested, directly or indirectly, and will provide Mortgagee with such security for the defense of any such suit or proceeding as Mortgagee reasonably may require. If Mortgagor fails to undertake the defense of any such claim in a timely manner. or fails to furnish Mortgagee with reasonable security for such defense, or, in Mortgagee's sole but reasonable determination, fails to prosecute such defense with due diligence, then Mortgagee is authorized to take, at the expense of Mortgagor, all necessary and proper action in defense of any such claim, including the retention of legal counsel, the prosecution or defense of litigation and the compromise or discharge of claims, including payment of all costs and reasonable attorneys' fees. All costs, expenses and losses, if any, so incurred by Mortgagee, including reasonable attorneys' fees, regardless of whether suit is brought and, if suit is brought, for all administrative, trial and appellate proceedings, if any, will constitute advances by Mortgagee as provided in Paragraph 13. 23. CUMULATIVE RIGHTS AND NON-WAIVER. No right or remedy conferred upon or reserved to Mortgagee by this Mortgage or in any of the other Loan Documents is intended to be exclusive of any other right or remedy; and each and every right and remedy is cumulative and in addition to any other right or remedy otherwise available. Every right, power, privilege and remedy granted Mortgagee by this Mortgage or any of the other Loan Documents, or both, or otherwise available at law or in equity may be exercised by Mortgagee from time to time as often as Mortgagee deems expedient until the Debt is paid in full. Mortgagee's failure to insist at any time upon the strict observance or performance by Mortgagor of any of the provisions of this Mortgage or in any of the other Loan Documents, or to exercise any right or remedy provided for in this Mortgage or in any of the other Loan Documents, will not impair any such right or remedy or be construed as a waiver or relinquishment thereof for the future. Receipt by Mortgagee of any payment required to be made pursuant to any of the Loan Documents with knowledge of the breach of any provision of any of the Loan Documents will not constitute a waiver of such breach. In addition to 21 22 all other remedies provided in this Mortgage, Mortgagee will be entitled, to the extent permitted by applicable law, to injunctive relief in the case of a violation or attempted or threatened violation of any of the provisions of the Loan Documents or to a decree ordering performance of any of the provisions of any of the foregoing. 24. JUDGMENT. Mortgagee may seek and recover a judgment for all amounts due and payable in accordance with the Note or under this Mortgage either before, after or during the pendency of any other proceedings or action to obtain relief under or with respect to any of the Loan Documents. Mortgagee's right to seek and recover any such judgment will not be affected by obtaining any other such relief. Mortgagee will continue to be entitled to enforce payment of, and to seek and recover a judgment for, any portion of the Debt remaining due and payable after the application of any proceeds of any sale of the Collateral pursuant to law. Neither the lien nor security interest of this Mortgage, nor any rights or remedies of Mortgagee hereunder or under any of the Loan Documents, will be impaired in any way by the recovery of any judgment by Mortgagee against Mortgagor or any guarantor of the Debt, or by the levy of an execution under such judgment upon any portion of the Collateral, until the Debt is paid in full. 25. [THIS SPACE INTENTIONALLY LEFT BLANK] 26. RELEASES AND EXTENSIONS BY Mortgagee. Mortgagee, from time to time, without notice to any person and without affecting the liability of Mortgagor or of any guarantor or of any other person (other than any person expressly released by Mortgagee in writing) for the payment of any of the Debt, and without affecting the priority or extent of the lien and security interest of this Mortgage (except as to property specifically released by Mortgagee in writing), may do any or all of the following: (i) release in whole or in part any person liable for payment of any or all of the Debt, or (ii) extend the time or otherwise alter the terms of payment of the Debt, in whole or in part, or (iii) accept additional or substitute security of any kind, or (iv) release or otherwise deal with all or any portion of the Collateral. 27. NOTICES. Any notice or demand that must or may be given or made in connection with this Mortgage must be in writing and, unless receipt is expressly required, will be deemed given, delivered or made, as the case may be, when delivered by personal delivery or when mailed by express mail, by overnight delivery service of a nationally- recognized company, or by certified or registered mail, return receipt requested, in any event, with sufficient postage affixed, and addressed to the parties at the addresses written on the first page of this Mortgage or on the signature pages of this Mortgage. Such addresses may be changed by notice pursuant to this Paragraph. Notice of change of address is effective only upon receipt. All of the persons executing this Mortgage as Mortgagor severally agree that a single notice to Mortgagor in the manner provided in this Paragraph will be effective to bind each such person for all purposes. 28. ESTOPPEL LETTERS. As and when, from time to time, requested by either Mortgagor or Mortgagee, and within ten (10) days after any such request, Mortgagor or Mortgagee, as the case may be, will execute and deliver to or at the direction of Mortgagee or Mortgagor, as the 22 23 case may be, such estoppel letters certifying such matters relating to this Mortgage or the Loan Documents, or both, as may reasonably be required. 29. TRANSFER. Mortgagor may not sell, convey, assign, transfer or otherwise dispose of any interest in all or any portion of the Collateral, or any ownership interest in Mortgagor or any guarantor, without Mortgagee's prior written consent, which consent may be withheld in Mortgagee's sole discretion. Whether such offer is voluntary or involuntary, or by operation of law (other than in connection with the death, disability or incompetency of any individual Mortgagor), any such offer will be void as to Mortgagee, and constitute an immediate Default under this Mortgage, without notice, in the sole discretion of Mortgagee. By consent to any offer, sale, or conveyance hereunder shall not be deemed a consent to any subsequent offer, sale, or conveyance for which Mortgagee's prior written approval has not been obtained. 30. GENERAL. The provisions of this Mortgage inure to the benefit of Mortgagee and its successors and assigns, and bind all persons executing this Mortgage as Mortgagor and their respective heirs, legal representatives, successors and assigns, jointly and severally, and all persons now or hereafter claiming any right, title and interest in and to any of the property, real, personal or mixed, tangible or intangible, now or hereafter existing or any substitutions or replacements thereof and described in this Mortgage as the Collateral. Time is of the essence to this Mortgage and each of its provisions. The provisions of this Mortgage are to be interpreted, construed, applied and enforced in accordance with the laws of the State of Florida, regardless of where this Mortgage is executed, delivered or breached, or where any payment or other performance required by this Mortgage is made, where any action or other proceeding involving this Mortgage is instituted, or whether the laws of the State of Florida otherwise would apply the laws of another jurisdiction; the foregoing choice of law provisions will apply to the Loan Documents. The provisions of the Loan Documents are severable at Mortgagee's option so that if any provision is declared by a court of competent jurisdiction to be invalid or unenforceable, no other provision will be affected by such invalidity or unenforceability, but will remain in force and effect according to its original terms, if Mortgagee so elects. Wherever used in this Mortgage or the other Loan Documents, or both, and unless expressly provided otherwise: (i) use of the singular includes the plural, and vice versa; (ii) use of one gender includes all genders; (iii) use of the term "include" or "including" is always without limitation; (iv) use of the words, "should," "must" and "will" has the same legal effect as the use of the word "shall"; (v) the term "day" means a banking day which shall be a day on which Mortgagee and other banks are open for the transaction of business, excluding any national holidays, and any performance which would otherwise be required on a day other than a banking day shall be timely performed in such instance, if performed on the next succeeding banking day; (vi) any definition herein incorporating one or more documents or items shall refer to such items "singularly and collectively", and (vii) "person" means any natural person or artificial entity having legal capacity. Paragraph headings and subheadings are for indexing purposes only and are not to be used to interpret, construe, apply or enforce the provisions of this Mortgage. Mortgagor and Mortgagee intend the provisions of this Mortgage and the other Loan Documents to be interpreted, construed, applied and enforced so as to avoid inconsistencies or conflicting results. This Mortgage may be 23 24 amended only by a written instrument executed by Mortgagor and Mortgagee with the same formalities as this Mortgage. 31. SATISFACTION. The lien and security interest provided by the Loan Documents will continue unimpaired and in full force and effect unless and until the Debt is paid in full, whereupon such lien and security interest will be without further force or effect. 32. [THIS SPACE INTENTIONALLY LEFT BLANK] 33. MORTGAGOR AS TENANT HOLDING OVER. In the event of a foreclosure sale of the Mortgaged Property, Mortgagor shall be deemed a tenant holding over and shall forthwith deliver possession to Mortgagee or any purchaser or purchasers at such sale or be summarily dispossessed according to provisions of the law of the State of Florida applicable to tenants holding over. 34. TIME OF THE ESSENCE. Time is of the essence with respect to each and every covenant,agreement, and obligation of Mortgagor under this Mortgage and the other Loan Documents,and any and all other instruments now or hereafter evidencing, securing or otherwise relating to the Loan. 35. ORAL MODIFICATION INEFFECTIVE. No term of this Mortgage or any other of the Loan Documents, or such documents, may be waived, changed, modified, discharged, or terminated except by an instrument in writing signed by the party against which enforcement of the waiver, change, modification, discharge, or termination is sought. 36. HAZARDOUS SUBSTANCES. Mortgagor covenants and agrees with Mortgagee that, throughout the term of the Note: (a) the Mortgaged Property shall be operated and maintained in compliance with all governmental or regulatory requirements; (b) Mortgagor shall maintain or procure all necessary permits, licenses, and certificates required by federal, state, and local laws throughout the Loan term; (c) all hazardous or toxic substances, within the definition of any applicable statute or regulation, which may be used by any person for any purpose upon the Mortgaged Property, shall be used or stored thereon only in a safe and approved manner, in accordance with all industrial standards and all laws, regulations and requirements for such storage promulgated by any applicable governmental agency or authority; (d) other than as described in (c) above, the Mortgaged Property will not be used for the purpose of storing such substances; and (e) other than as described in (c) above, no such storage or use will otherwise be allowed on the Mortgaged Property (whether through leases with tenants who might store or use hazardous substances or otherwise) which will cause, or which will increase the likelihood of causing, the release of such hazardous or toxic substances onto the Mortgaged Property. Mortgagor shall immediately notify Mortgagee of any failure to comply under this Paragraph or receipt of any notice of violation or third party complaint. Mortgagor hereby agrees to indemnify and save and hold Mortgagee harmless of and from all claims, damages, loss, liabilities, penalties, fines, remedial action requirements, and enforcement actions, along with the costs and attorneys' fees incurred by Mortgagee in defending Mortgagor's use, generation, transportation, and disposal, release, or 24 25 threatened release of hazardous substances, including without limitation, asbestos-containing materials or damage whatsoever incurred by Mortgagee arising out of or by reason of any violation of any applicable statute or regulation for the protection of the environment which occurs upon the Mortgaged Property from and after the date hereof, or by reason of the imposition of any governmental lien for the recovery of environmental clean-up costs expended by reason of such violation, including without limitation any lien arising pursuant to any so-called "Super Fund" or "Super Lien" legislation. The foregoing indemnity and covenants of Mortgagor shall not be applicable to any violations of law or any liability resulting from adverse environmental conditions in, on or about the Mortgaged Property created or in existence prior to the date hereof ("Pre-existing Environmental Conditions") A default under this Paragraph shall constitute a Default under this Mortgage. It is expressly acknowledged by Mortgagor that this indemnification shall survive any foreclosure of the lien and security interest of this Mortgage or the discharge of this Mortgage and shall inure to the benefit of Mortgagee, its successors and assigns. 37. ENVIRONMENTAL ASSESSMENTS. At any time Mortgagee has a reasonable basis to suspect that a violation of Mortgagor's obligations set forth in Paragraph 36 has occurred or in the event a Default by Mortgagor shall have occurred and be continuing beyond any cure period applicable thereto, Mortgagee may, at its election, obtain one or more environmental assessments of the Mortgaged Property prepared by a geohydrologist, an independent engineer, or other qualified consultant or expert approved by Mortgagee evaluating or confirming (i) whether any hazardous substances are present in the soil or water at the Mortgaged Property and (ii) whether the use and operation of the Mortgaged Property comply with all applicable environmental laws relating to air quality, environmental control, release of oil, hazardous materials, hazardous wastes and hazardous substances, and any and all other applicable environmental laws. Environmental assessments may include detailed visual inspections of the Mortgaged Property including, without limitation, any and all storage areas, storage tanks, drains, dry wells, and leaching areas, and the taking of soil samples, surface water samples, and ground water samples, as well as such other investigations or analyses as are necessary or appropriate for a complete determination of the compliance of the Mortgaged Property and the use and operation thereof with all applicable environmental laws. All such environmental assessments shall be at the sole cost and expense of Mortgagor. In the event it is determined that additional tests and/or remediation are necessary as a result of the aforesaid assessments, or in the event such additional testing or remediation is recommended by the aforesaid assessments, the Mortgagor agrees to immediately perform the tests or undertake the remediation as recommended. Nothing contained in this Paragraph 8 shall be applicable to, or shall impose any obligation upon Mortgagor with respect to, any Pre-existing Environmental Conditions. 38. Permitted Secondary Financing. Mortgagee has consented to a second mortgage encumbering the Property to be given contemporaneously herewith by Mortgagor in favor of ALI, Inc., a Delaware corporation pursuant to the terms of that certain Intercreditor Agreement of even date herewith. 39. WAIVER OF JURY TRIAL. BY ACCEPTANCE HEREOF MORTGAGOR AGREES THAT NEITHER MORTGAGOR, NOR ANY OF THEM OR LEGAL 25 26 REPRESENTATIVE OF MORTGAGOR (ALL OF WHOM ARE HEREINAFTER REFERRED TO AS THE "PARTIES") SHALL SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION PROCEDURE BASED UPON OR ARISING OUT OF THIS MORTGAGE OR ANY INSTRUMENT EVIDENCING, SECURING, OR RELATING TO THE INDEBTEDNESS AND OTHER OBLIGATIONS EVIDENCED HEREBY, ANY RELATED AGREEMENT OR INSTRUMENT, ANY OTHER COLLATERAL FOR THE INDEBTEDNESS EVIDENCED HEREBY OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG THE PARTIES, OR ANY OF THEM. NONE OF THE PARTIES WILL SEEK TO CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A JURY TRIAL HAS NOT BEEN WARIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY NEGOTIATED BY THE PARTIES WITH MORTGAGEE, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. MORTGAGEE HAS IN NO WAY AGREED WITH OR REPRESENTED TO THE PARTIES THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. IN WITNESS WHEREOF, Mortgagor has executed and delivered this Mortgage as of the date stated above. SIGNED, SEALED AND DELIVERED "MORTGAGOR" IN THE PRESENCE OF: ACP-ATRIUM CG, LIMITED PARTNERSHIP, a Florida Limited Partnership By: ACP-ATRIUM CG, INC., a Florida corporation, its general partner By: - --------------------------- --------------------------- PRINT NAME OF WITNESS BELOW: Name: ---------------------- - --------------------------- Title: ---------------------- - --------------------------- PRINT NAME OF WITNESS BELOW: - --------------------------- 26 27 STATE OF FLORIDA) )ss: COUNTY OF ) The foregoing instrument was acknowledged before me this ____ day of ____________, 1995 by _________________________, ________________ of ACP-Atrium CG, Inc., a Florida corporation, on behalf of the corporation as general partner of ACP-Atrium CG, Limited Partnership. He/she is personally known to me or has produced ____________________ (type of identification) as identification. My Commission Expires: --------------------------------- NOTARY PUBLIC - ---------------------- --------------------------------- Print Name Commission No.: ---------------- [NOTARIAL SEAL] 27 28 STATE OF FLORIDA) )SS: COUNTY OF DADE ) I HEREBY CERTIFY that on this day, before me, an officer duly authorized in the State aforesaid and in the County aforesaid to take acknowledgments, the foregoing instrument was acknowledged before me by _____________________________, the _____________ of __________________________, a ___________________, freely and voluntarily under authority duly vested in him/her by said corporation and that the seal affixed thereto is the true corporate seal of said corporation. He/She is personally known to me or who has produced ________________ as identification and who DID/DID NOT take an oath. WITNESS my hand and official seal in the County and State last aforesaid this day of ____________________________, 19__. My Commission Expires: ------------------------------ NOTARY PUBLIC - -------------------------- Print Name ------------------------------ Commission No.: ------------------ [NOTARIAL SEAL] [JLR.WACKENHUT]030 28 EX-10.9 14 KEY INCENTIVE LONG TERM INCENTIVE STOCK PLAN 1 EXHIBIT 10.9 KEY EMPLOYEE LONG-TERM INCENTIVE STOCK PLAN The Wackenhut Corporation July 1991 2 The Wackenhut Corporation Key Employee Long-Term Incentive Stock Plan TABLE OF CONTENTS
Article Section Page - ------- ------- ---- 1 ESTABLISHMENT, PURPOSE, AND DURATION ------------------------------------ 1.1 Establishment of the Plan 1 1.2 Purpose of the Plan 1 1.3 Duration of the Plan 2 2 DEFINITIONS AND CONSTRUCTION ---------------------------- 2.1 Definitions 2 2.2 Gender and Number 8 2.3 Severability 8 3 ADMINISTRATION -------------- 3.1 The Committee 9 3.2 Authority of the Committee 9 3.3 Decisions Binding 9 3.4 Procedures of the Committee 10 3.5 Award Agreements 10 4 SHARES SUBJECT TO THE PLAN -------------------------- 4.1 Number of Shares 11 4.2 Lapsed Awards 11 4.3 Adjustments in Authorized Shares 11 5 ELIGIBILITY AND PARTICIPATION ----------------------------- 5.1 Eligibility 12 5.2 Actual Participation 12
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Article Section Page ------- ------- ---- 6 STOCK OPTIONS ------------- 6.1 Grant of Options 12 6.2 Option Agreement 13 6.3 Option Price 13 6.4 Duration of Options 13 6.5 Exercise of Options 13 6.6 Payment 14 6.7 Restrictions on Share Transferability 14 6.8 Termination of Employment Due to Death, Disability, or Retirement 15 6.9 Termination of Employment for Other Reasons 16 6.10 Nontransferability of Options 16 7 RESTRICTED STOCK UNITS ---------------------- 7.1 Grant of Restricted Stock Units 16 7.2 Restricted Stock Unit Agreement 16 7.3 Vesting 17 7.4 Other Restrictions 17 7.5 Payment 17 7.6 Dividend Equivalents 17 7.7 Termination of Employment Due to Death, Disability or Retirement 18 7.8 Termination of Employment for Other Reasons 18 8 PERFORMANCE UNITS AND PERFORMANCE SHARES ---------------------------------------- 8.1 Grant of Performance Units and Performance Shares 19 8.2 Value of Performance Units and Performance Shares 19 8.3 Payment of Performance Units and Performance Shares 19 8.4 Form and Timing of Payment 20 8.5 Termination of Employment Due to Death, Disability or Retirement 20 8.6 Termination of Employment for Other Reasons 20 8.7 Nontransferability 20
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Article Section Page ------- ------- ---- 9 RIGHTS OF EMPLOYEES ------------------- 9.1 Employment 21 9.2 Participation 21 10 CHANGE IN CONTROL ----------------- 10.1 Stock Based Awards 21 10.2 Performance Based Awards 21 11 AMENDMENT, MODIFICATION, AND TERMINATION ---------------------------------------- 11.1 Amendment, Modification, and Termination 22 11.2 Awards Previously Granted 23 12 WITHHOLDING ----------- 12.1 Tax Withholding 23 12.2 Share Withholding 23 13 REDEMPTION OF COMMON STOCK ON TERMINATION OF EMPLOYMENT 24 ------------------------------------------------------- 14 INDEMNIFICATION 24 --------------- 15 SUCCESSORS 25 ---------- 16 REQUIREMENTS OF LAW ------------------- 16.1 Requirements of Law 25 16.2 Governing Law 25
iii 5 THE WACKENHUT CORPORATION KEY EXECUTIVE LONG-TERM INCENTIVE STOCK PLAN ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION 1.1 Establishment of the Plan. The Wackenhut Corporation (hereinafter referred to as the "Company"), a Florida corporation, hereby establishes an incentive compensation plan to be known as the "Key Executive Long-Term Incentive Stock Plan" (hereinafter referred to as the "Plan"), as set forth in this document. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock Units, Performance Units, and Performance Shares. Upon approval by the Board of Directors of the Company, subject to ratification withing twelve (12) months by an affirmative vote of a majority of Shares of the Common Stock present and entitled to vote at the Annual Meeting at which a quorum is present, the Plan shall become effective as of August 1, 1991 (the "Effective Date"), and shall remain in effect as provided in Section 1.3 herein. 1.2 Purpose of the Plan. The purpose of the Plan is to promote the success, and enhance the value, of the Company by providing incentives to Key Employees that will link their personal interests to those of Company shareholders, and provide an incentive for outstanding performances. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Key Employees upon whose judgment, interest, and special effort the successful conduct of its operations largely is dependent. -1- 6 1.3 Duration of the Plan. The Plan shall commence on the Effective Date, as described in Section 1.1 herein, and shall remain in effect, subject to the right of the Board of Directors to terminate the Plan at any time pursuant to Article 12 herein, until all Shares subject to it shall have been purchased or acquired according to the Plan's provisions. However, in no event may an Award be granted under the Plan on or after the tenth (10th) anniversary of the Plan's Effective Date. ARTICLE 2. DEFINITIONS AND CONSTRUCTION 2.1 Definitions. Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: (a) "Award" means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock Units, Performance Units or Performance Shares. (b) "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. (c) "Board" or "Board of Directors" means the Board of Directors of the Wackenhut Corporation. (d) "Cause" means (i) willful and gross misconduct on the part of a Participant that is materially and demonstrably detrimental to the Company; or -2- 7 (ii) the commission by a Participant of one or more acts which constitute an indictable crime under United States Federal, state, or local law. "Cause" under either (i) or (ii) shall be determined in good faith by a written resolution duly adopted by the affirmative vote of not less than two-thirds (2/3) of all the Directors at a meeting duly called and held for that purpose after reasonable notice to the Participant and opportunity for the Participant and his or her legal counsel to be heard. (e) "Change in Control" of the Company shall be deemed to have occurred if the conditions set forth in any one or more of the following paragraphs shall have been satisfied: (i) Any Person (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of Shares of the Company), is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; or -3- 8 (ii) During any period of two (2) consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board (and any new Director, whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority thereof; or (iii) The stockholders of the Company approve (a) a plan of complete liquidation of the Company; or (b) an agreement for the sale or disposition of all or substantially all the Company's assets; or (c) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), at least 50% of the combined voting securities of the Company (or such surviving entity) outstanding immediately after such merger or consolidation. -4- 9 However, in no event shall a Change in Control be deemed to have occurred, with respect to the Participant, if the Participant is part of a purchasing group which consummates the Change-in-Control transaction. A Participant shall be deemed "part of a purchasing group..." for purposes of the preceding sentence if the Participant is an equity participant or has agreed to become an equity participant in the purchasing company or group (except for (i) passive ownership of less than 5% of the Shares of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the Change in Control by a majority of the disinterested Directors). (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (g) "Committee" means the Nominating and Compensation Committee of the Board, or any other committee appointed by the Board to administer the Plan pursuant to Article 3 herein. (h) "Company means The Wackenhut Corporation, a Florida corporation (including any and all subsidiaries), or any successor thereto as provided in Article 15 herein. (i) "Director" means any individual who is a member of the Board of Directors of the Company. -5- 10 (j) "Disability means a permanent and total disability, within the meaning of the Code Section 22(e) (3), as determined by the Committee in good faith, upon receipt of sufficient competent medical advice from one or more individuals, selected by the Committee, who are qualified to give professional medical advice. (k) "Employee" means any full-time, nonunion employee of the Company. Directors who are not otherwise employed by the Company shall not be considered employees under this Plan. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor Act thereto. (m) "Fair Market Value" means the average of the highest and lowest price at which the Stock was traded on the five business days preceding the date of an award, as reported on the consolidated tape of the New York Stock Exchange. (n) "Incentive Stock Option" or "ISO" means an option to purchase Shares, granted under Article 6 herein, which is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422A of the Code. (o) "Key Employee" means an employee of the Company, including an employee who is an officer of the Company, who, in the opinion of members of the Committee, can contribute significantly to the -6- 11 growth and profitability of the Company. "Key Employee" also may include those employees, identified by the Committee, in situations concerning extraordinary performance, promotion, retention, or recruitment. The granting of an Award under this Plan shall be deemed a determination by the Committee that such employee is a Key Employee. (p) "Nonqualified Stock Option" or "NQSO" means an option to purchase Shares, granted under Article 6 herein, which is not intended to be an Incentive Stock Option. (q) "Option means an Incentive Stock Option or a Nonqualified Stock Option. (r) "Option Price" means the price at which a share may be purchased by a Participant pursuant to an Option, as determined by the Committee. (s) "Participant" means a Key Employee of the Company who has an outstanding Award granted under the plan. (t) "Performance Share" means an Award, designated as a performance share, granted to a Participant pursuant to Article 8 herein. (u) "Performance Unit" means an Award, designated as a performance unit, granted to a Participant pursuant to Article 8 herein. -7- 12 (v) "Period of Restriction" means the period during which the transfer of Shares covered by each grant of Restricted Stock Units is restricted in some way (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, at its discretion), and is subject to a substantial risk of forfeiture, as provided in Article 7 herein. (w) "Person" shall have the meaning ascribed to such term in Section 3(a) (9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) (x) "Restricted Stock Unit" means an Award granted to a Participant pursuant to Article 7 herein. (y) "Stock" or "Shares" means the $.10 par value common stock of The Wackenhut Corporation. 2.2 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 2.3 Serverability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. -8- 13 ARTICLE 3. ADMINISTRATION 3.1 The Committee. The Plan shall be administered by the Nominating and Compensation Committee of the Board, or by any other Committee appointed by the Board consisting of not less than two (2) Directors who are not Employees. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors. No member of the Committee shall be eligible to participate in the Plan or any similar Plan of the Company or any of its Subsidiaries while serving on the Committee or shall have been so eligible at any time within one (1) year prior to his or her service on the Committee. 3.2 Authority of the Committee. Subject to the provisions herein and subject to ratification by the Board, the committee shall have full power to select Key Employees to whom Awards are granted; to determine the size and types of Awards; to determine the terms and conditions of such Awards in a manner consistent with the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan's administration; and (subject to the provisions of Article 11 herein) to amend the terms and conditions of any outstanding Award to the extent such terms and conditons are within the discretion of the Committee as provided in the Plan. Further, the Committee shall have the full power to make all other determinations which may be necessary or advisable for the administration of the Plan. 3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders or resolutions of the Board of Directors shall be final, conclusive, and binding on all Persons, including the -9- 14 Company, its stockholders, employees, Participants, and their estates and beneficiaries. 3.4 Procedures of the Committee. All determinations of the Committee shall be made by not less than a majority of its members present at the meeting (in person or otherwise) at which a quorum is present. A majority of the entire Committee shall constitute a quorum for the transaction of business. Any action required or permitted to be taken at a meeting of the Committee may be taken without a meeting if a unanimous written consent, which sets forth the action, is signed by each member of the Committee and filed with the minutes for proceedings of the Committee. No member of the Committee shall be liable, in the absence of bad faith, for any act or omission with respect to his or her services on the Committee. Service on the Committee shall constitute service as a director of the Company so that members of the Committee shall be entitled to indemnification (as provided in Article 14 herein), and limitation of liability and reimbursement with respect to their services as members of the Committee to the same extent as for services as directors of the Company 3.5 Award Agreements. Each Award under the Plan shall be evidenced by an award agreement which shall be signed by an officer of the Company and by the Participant, and shall contain such terms and conditions as may be approved by the Committee, which need not be the same in all cases. Any award agreement may be supplemented or amended in writing from time to time as approved by the Committee, provided that the terms of such agreements as amended or supplemented, as well as the terms of the original award agreement, are not inconsistent with the provisions of the Plan. -10- 15 ARTICLE 4. SHARES SUBJECT TO THE PLAN 4.1 Number of Shares. Subject to adjustment as provided in Section 4.3 herein, no more than 250,000 Shares may be granted under the Plan, of which no more than 100,000 may be issued in payment of Restricted Stock Units under Article 7 of the Plan. Stock delivered under the Plan may consist, in whole or in part, of authorized and unissued Shares or treasury Shares. The payment of Performance Units or Performance Shares shall not be deemed to constitute an issuance of Stock under the Plan unless payment is made in Stock, in which case only the number of Shares issued in payment of the Performance Unit or Performance Share Award shall constitute an issuance of Stock under the Plan. 4.2 Lapsed Awards. If any Award granted under this Plan terminates, expires, or lapses for any reason, any Shares subject to such Award again shall be available for the grant of an Award under the Plan. 4.3 Adjustments in Authorized Shares. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, Stock dividend, split-up, Share combination, or other change in the corporate structure of the Company affecting the Shares, such adjustment shall be made in the number and class of Shares which may be delivered under the Plan, and in the number and class of and/or price of Shares subject to outstanding Options, Restricted Stock units, Performance Units and Performance Shares granted under the Plan, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; and provided that the number of Shares subject to any Award shall always be a whole number. Any -11- 16 adjustment of an ISO under this paragraph shall be made in such a manner so as not to constitue a "modification" within the meaning of Section 425(h) (3) of the Code. ARTICLE 5. ELIGIBILITY AND PARTICIPATION 5.1 Eligibility. Persons eligible to participate in this Plan include all Employees of the Company, who, in the opinion of members of the Committee, are Key Employees. "Key Employees" may include Employees who are members of the Board, but may not include Directors who are not Employees. 5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from Key Employees those to whom Awards shall be granted and shall determine the nature and amount of each Award. No Employee shall have any right to be granted an Award under this Plan. ARTICLE 6. STOCK OPTIONS 6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Key Employees at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Shares subject to Options granted to each Participant. The Committee may grant ISOs, NQSOs, or a combination thereof. However, no Employee may receive an Award of ISOs that are first exercisable during any calendar year to the extent that the aggregate Fair Market Value of the Shares (determined at the time the options are granted) exceeds $100,000. Nothing in this Article 6 shall be deemed to prevent the grant of NQSOs in excess of the maximum established by Section 422A of the Code. -12- 17 6.2 Option Agreement. Each Option grant shall be evidenced by an Option Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. The Option Agreement also shall specify whether the Option is intended to be an ISO within the meaning of Section 422A of the Code, or a NQSO whose grant is intended not to fall under the Code provisions of Section 422A. 6.3 Option Price. The purchase price per Share covered by an Option shall be determined by the Committee but, in the case of an ISO, shall not be less than 100% of the Fair Market Value of such Share on the date the Option is granted. An ISO granted to an employee who, at the time of grant, owns (within the meaning of Section 425(d) of the Code) Shares possessing more than 10% of the total combined voting power of all classes of stock of the Company, shall have an exercise price which is at least 110% of the Fair Market Value of the Shares subject to the Option. 6.4 Duration of Options. Each Option shall expire at such time as the Committee shall determine at the time of grant provided, however, that no ISO shall be exercisable later than the tenth (10th) anniversary date of its grant. 6.5 Exercise of Options. Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. However, in no event may any Option granted under this Plan become exercisable prior to six (6) months following the date of its grant. -13- 18 6.6 Payment. Options shall be exercised by the delivery of a written notice of exercise to the Secretary of the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Option shall be payable to the Company in full either (a) in cash or its equivalent, or (b) by tendering previously acquired Shares having a Fair Market Value at the time of exercise equal to the total Option Price (provided that the Shares which are tendered must have been held by the Participant for at least six (6) months prior to their tender to satisfy the Option Price), or (c) by a combination of (a) or (b). The Committee also may allow cashless exercise as permitted under Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law. The proceeds from such a payment shall be added to the general funds of the Company and shall be used for general corporate purposes. As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant's name, Share certificates in an appropriate amount based upon the number of Options exercised. 6.7 Restrictions on Share Transferability. The Committee shall impose such restrictions on any Shares acquired pursuant to the exercise of an Option under the Plan, as it may deem advisable, including, without limitation, restrictions under -14- 19 applicable Federal securities laws, under the requirements of any Stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares. 6.8 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of a Participant is terminated by reason of death or Disability, any outstanding Options shall become immediately exercisable at any time prior to the expiration date of the Options or within one year after such date of termination of employment, whichever period is shorter, by such person or persons as shall have acquired the Participant's rights under the Option by will or by the laws of descent and distribution. In the event the employment of a Participant is terminated by reason of retirement (as defined under the then established rules of the Company's nonqualified retirement plan), any outstanding Options shall become immediately exercisable at any time prior to the expiration date of the options. In its sole discretion, and prior to the termination of the employment due to death, Disability or retirement, the Committee may extend the period during which outstanding Options may be exercised. In the case of ISOs, the tax treatment prescribed under Section 422A of the Internal Revenue Code of 1986, as amended, may not be available if the Options are not exercised within the Section 422A prescribed time period after termination of employment. -15- 20 6.9 Termination of Employment for Other Reasons. If the employment of the Participant shall terminate for any reason other than for death, Disability, retirement, or for Cause, the Participant shall have the right to exercise Options that were vested in the Participant at the date of termination within the 90 days after the date of termination, but in no event beyond the expiration of the term of the Option and only to the extent that the Participant was entitled to exercise the Option at the date of termination of employment. The Committee, in its sole discretion, shall have the right to extend the 90 days up to one (1) year after the date of such termination, but, however, in no event beyond the expiration date of the Options. If the employment of the Participant shall terminate for Cause, all outstanding Options immediately shall be forfeited to the Company and no additional exercise period shall be allowed, regardless of the vested status of the Options. 6.10 Nontransferability of Options. No Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all Options granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. ARTICLE 7. RESTRICTED STOCK UNITS 7.1 Grant of Restricted Stock Units. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Restricted Stock Units to Key Employees in such amounts as the Committee shall determine. 7.2 Restricted Stock Unit Agreement. Each Restricted Stock Unit grant shall be evidenced by a Restricted Stock Unit -16- 21 Agreement that shall specify the Period of Restriction, or Periods, the number of Restricted Stock Units covered by the grant, and such other provisions as the Committee shall determine. Each Restricted Stock Unit shall be equivalent in value to a Share of Common Stock. 7.3 Vesting. Each grant of Resticted Stock Units shall require the Participant to remain in the employment of the Corporation or a Subsidiary for a prescribed period ("Restriction Period"). The Committee shall determine the Restriction Period or Periods which shall apply to the share of Common Stock covered by each grant of Restricted Stock Units, provided that in no case shall the Restriction period be less than six months. 7.4 Other Restrictions. The Committee shall impose such other restrictions on any Restricted Stock Units granted pursuant to the Plan as it may deem advisable including, without limitation, restrictions based upon the achievement of specific (Company-wide, divisional, and/or individual) performance goals, and/or restrictions under applicable Federal or state securities laws. 7.5 Payment. Upon expiration of the Restriction Period or Periods applicable to each grant of Restricted Stock Units, the Participant shall, without payment on his part, be entitled to receive payment in an amount equal to the aggregate fair market value of the shares of Common Stock covered by such grant on the date of expiration. Such payment may be made only in shares of Common Stock equal to the number of Restricted Stock Units with respect to which such payment is made. 7.6 Dividend Equivalents. A Participant whose Restricted Stock Units have not previously terminated shall be entitled to receive payment in an amount equal to each cash dividend the -17- 22 Company would have paid to such Participant during the term of those Restricted Stock Units as if the Particpant has been the owner of record of the shares of Common Stock covered by such Restricted Stock Units on the record date for the payment of such dividend. Payment of each such dividend equivalent shall be made on payment date of the cash dividend with respect to which it is made, or as soon as practicable thereafter. 7.7 Termination of Employment Due to Death, Disability, or Retirement. In the event that a Participant's employment is terminated with the Company because of death, Disability, or normal retirement (as defined under the then established rules of the Company), any remaining Period of Restriction applicable to the Restricted Stock Units pursuant to Section 7.3 hereof shall automatically terminate and, except as otherwise provided in Section 7.4, the Shares issued in payment of the Restricted Stock Units shall be free of restrictions and freely transferable. In the event that a Participant terminates his employment with the Company because of early retirement (as defined under the then established rules of the Company), the Committee, in its sole discretion, may waive the restrictions remaining on any or all grants of Restricted Stock Units pursuant to Section 7.3 herein and add such new restrictions to Shares issued in payment of Restricted Stock Units as it deems appropriate. 7.8 Termination of Employment for Other Reasons. In the event that a Participant terminates his employment with the Company for any reason other than for death, Disability, or retirement, as set forth in Section 7.7 herein, during the Period of Restriction, then any Restricted Stock Units granted still subject to restrictions as of the date of such termination shall automatically be forfeited. In such event, the Participant shall not be entitled to receive any payment with respect to those Restricted Stock Units, except as provided in Section 7.6 herein, -18- 23 provided, however, that, in the event of an involuntary termination of the employment of a Participant by the Company other than for Cause, the Committee, in its sole discretion, may waive the automatic forfeiture of any or all such Restricted Stock Unit grants. ARTICLE 8. PERFORMANCE UNITS AND PERFORMANCE SHARES 8.1 Grant of Performance Units and Performance Shares. Subject to the terms and provisions of the Plan, Performance Units or Performance Shares may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Performance Units or Performance Shares granted to each Participant. 8.2 Value of Performance Units and Performance Shares. Each Performance Unit shall have an initial value of one dollar ($1) and each Performance Share initially shall represent one share of Stock. The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the ultimate value of the Performance Unit or Performance Share to the Participant. The time period during which the performance goals must be met shall be called a "Performance Period," and shall, in all cases, exceed six (6) months in length. 8.3 Payment of Performance Units and Performance Shares. After a Performance Period has ended, the holder of a Performance Unit or Performance Share shall be entitled to receive the value thereof as determined by the extent to which performance goals discussed in Section 8.2 have been met. -19- 24 8.4 Form and Timing of Payment. Payment in Section 8.3 above shall be made in cash, stock, or a combination thereof as determined by the Committee. Payment may be made in a lump sum or installments as prescribed by the Committee. If any payment is to be made on a deferred basis, the Committee may provide for the payment of dividend equivalents or interest during the deferral period. 8.5 Termination of Employment Due to Death, Disability, or Retirement. In the case of death, Disability, or retirement, the holder of a Performance Unit or Performance Share shall receive pro rata payment based on the number of months' service during the Performance Period but based on the achievement of performance goals during the entire Performance Period. Payment shall be made at the time payments are made to Participants who did not terminate service during the Performance Period. 8.6 Termination of Employment for Other Reasons. In the event that a Participant terminates employment with the Company for any reason other than death, Disability, or Retirement, all Performance Units or Performance Shares shall be forfeited; provided, however, that in the event of an involuntary termination of the employment of the Participant by the Company other than for Cause, the Committee in its sole discretion may waive the automatic forfeiture provisions and pay out on a pro rata basis. 8.7 Nontransferability. No Performance Units or Performance Shares granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution until the termination of the applicable Performance Period. All rights with respect to Performance Units or Performance Shares granted to a Participant under the Plan -20- 25 shall be exercisable during his lifetime only by the Participant or the Participant's legal representative. ARTICLE 9. RIGHTS OF EMPLOYEES 9.1 Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. 9.2 Participation. No employee shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award. ARTICLE 10. CHANGE IN CONTROL 10.1 Stock Based Awards. Notwithstanding the remaining provisions of the Plan, in the event of a Change in Control of the Company, all Stock based awards granted under this Plan, including NQSOs, ISOs, and Restricted Stock Units, that are still outstanding and not yet vested, shall become immediately 100% vested in each Participant, as of the first date that the definition of Change in Control has been fulfilled, and shall remain as such for the remaining life of the Award, as such life is provided herein and within the provisions of the related individual Award Agreements. Within ten (10) business days after the occurrence of a Change in Control, the stock certificates representing payment of Restricted Stock Unit grants, without any restrictions or legend thereon, shall be delivered to the applicable Participants. 10.2 Performance Based Awards. Notwithstanding the remaining provisions of the Plan, in the event of a Change in Control of the Company, all performance based awards granted -21- 26 under this Plan shall be immediately paid out in cash, including Performance Units or Performance Shares. The amount of the payout shall be based on the extent to which performance goals, established for the Performance Period then in progress have been met up to the date of the Change in Control, or at target, whichever is higher. Not withstanding the foregoing, all Performance Units and Performance Share Awards which shall have been outstanding less than six (6) months on the effective date of the Change in Control shall not be deemed to have earned either the performance goals or the target goals. ARTICLE 11. AMENDMENT, MODIFICATION, AND TERMINATION 11.1 Amendment, Modification, and Termination. With the approval of the Board, at any time and from time to time, the Committee may terminate, amend, or modify the Plan. However, without approval of the stockholders of the Company (as may be required by the Code, by the insider trading rules of Section 16 of the Exchange Act, by any national securities exchange or system on which the Shares are then listed or reported, or by a regulatory body having jurisdiction with respect hereto), no such termination, amendment, or modification may: (a) Increase the total amount of Shares which may be issued under this Plan, except as provided in Section 4.3 herein; or (b) Change the class of employees eligible to participate in the Plan; or (c) Materially increase the cost of the Plan or materially increase the benefits to Participants; or -22- 27 (d) Extend the maximum period after the date of grant during which Options may be exercised; or (e) Change the provisions of the Plan regarding Option Price. 11.2 Awards Previously Granted. No termination, amendment, or modification of the Plan shall in any manner adversely affect any Award previously granted under the Plan, without the written consent of the Participant. ARTICLE 12. WITHHOLDING 12.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any grant, exercise, or payment made under or as a result of this Plan. 12.2 Share Withholding. With respect to withholding required upon the exercise of NQSOs, or upon the payment of Restricted Stock Units, or upon the payment of Performance Units or Performance Shares (if paid in full or part in Shares), participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value, on the date the tax is to be determined, equal to the amount required to be withheld. All elections shall be irrevocable, and be made in writing, signed by the Participant in advance of the day that the transaction becomes taxable. -23- 28 Share withholding elections made by Participants who are subject to the short-swing profit restrictions of Section 16 of the Exchange Act must comply with such additional restrictions in making their election. ARTICLE 13. REDEMPTION OF COMMON STOCK ON TERMINATION OF EMPLOYMENT As of the time of voluntary or involuntary termination of employment of a Participant and at the discretion of the Committee, Participant shall sell to the Corporation, and the Corporation shall redeem from the Participant, all of Participant's Shares, that are owned or have vested due to Participant's participation in the Plan. The redemption price for each Share redeemed shall be the average of the highest and lowest price at which the Stock was traded during the five business days preceding the date of the Committee's decision to redeem the Shares of a Participant. The redeemed Shares shall be transferred to the Corporation properly endorsed by the Participant free and clear of all claims, liens, and encumbrances whatsoever. As used herein, the term "termination of employment" means the complete termination of employment. ARTICLE 14. INDEMNIFICATION Each Person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit, or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him in settlement thereof, with the Company's approval, or paid by him in satisfaction of any judgment in any such -24- 29 action, suit, or proceeding against him, provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights on indemnification to which such Persons may be entitled under the Company's Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. ARTICLE 15. SUCCESSORS All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. ARTICLE 16. REQUIREMENTS OF LAW 16.1 Requirements of Law. The granting of Awards and the issuance of Shares under this Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 16.2 Governing Law. To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Florida. -25- EX-21.1 15 SUBSIDIARIES 1 EXHIBIT 21.1 SUBSIDIARIES OF THE CORPORATION SUBSIDIARIES OF THE WACKENHUT CORPORATION American Guard and Alert, Inc. (Alaska) Titania Advertising, Inc. (Florida) Titania Insurance Company of America (Vermont) Tuhnekcaw, Inc. (Delaware) Wackenhut Airline Services, Inc. (Florida) Wackenhut Australia, Pty., Ltd. Wackenhut Corrections Corporation (Florida) Wackenhut Educational Services, Inc. (Florida) Wackenhut Financial, Inc. (Delaware) Wackenhut International, Incorporated (Florida) Wackenhut of Nevada, Inc. (Nevada) Wackenhut Services, Incorporated (Florida) Wackenhut Sports Security, Inc. (Florida) SUBSIDIARIES OF WACKENHUT INTERNATIONAL, INCORPORATED Central African Republic Instituto Wackenhut, S.A. (Ecuador) Peruana de Seguridad y Vigilancia, S.A. (PESEVISA) (Peru) Seguridad Movil del Ecuador, S.A. (Ecuador) Servicios Estrategicos, S.A. (Peru) Wackenhut A/O (Russia) Wackenhut Belize Ltd. (Belize) Wackenhut Bolivia, S.A. (Bolivia) Wackenhut Cameroon Wackenhut Central Europe GMBH (Germany) Wackenhut Czech, SPOL, S.R.O. (Czech Republic) Wackenhut de El Salvador, S.A. (El Salvador) Wackenhut de Guatemala, S.A. (Guatemala) Wackenhut de Honduras, S.A. (Honduras) Wackenhut de Nicaragua, S.A. (Nicaragua) Wackenhut de Venezuela, S.A. (Venezuela) Wackenhut del Ecuador, S.A. (Ecuador) Wackenhut Dominicana, S.A. (Dominican Republic) Wackenhut Gambia, Ltd. (Gambia) Wackenhut Ghana Limited (Ghana) Wackenhut International (PVT) (Pakistan) Wackenhut Korea Corporation (Korea) Wackenhut of Canada Limited (Canada) Wackenhut Maghreb, S.A. (Morocco) Wackenhut Paraguay, S.A. (Paraguay) Wackenhut Puerto Rico, Inc. (Puerto Rico) Wackenhut S.A. (Costa Rica) Wackenhut Seges (Ivory Coast) Wackenhut Sierra Leone (Sierra Leone) Wackenhut U K Limited (United Kingdom) Wackenhut Uruguay (Uruguay) WII/Sound and Security Engineering Co. (Jordan) 2 SUBSIDIARIES OF WACKENHUT U.K. LIMITED Advance Security Technology, Ltd. (United Kingdom) Wackenhut Appointments Limited (United Kingdom) Wackenhut Investigations Limited (United Kingdom) SUBSIDIARY OF AMERICAN GUARD AND ALERT Ahtna AGA Security, Inc. (Alaska) SUBSIDIARY OF WACKENHUT CORRECTIONS CORPORATION Wackenhut Corrections (U.K.), Limited (United Kingdom) Wackenhut Corrections Corporation Australia (Australia) WCC Financial, Inc. (Delaware) SUBSIDIARY OF WACKENHUT CORRECTIONS CORPORATION AUSTRALIA Australasian Correctional Management PTY, Limited (Australia) EX-23.1 16 CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANTS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statements on Form S-8 File Nos. 33-59159 and 33-67158. ARTHUR ANDERSEN LLP Miami, Florida, March 29, 1996. EX-24.1 17 POWERS OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY In connection with the filing with the Securities and Exchange Commission by The Wackenhut Corporation, a Florida corporation (the "Corporation"), of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, under the Securities Exchange Act of 1934, I hereby appoint and constitute Robert C. Kneip, James P. Rowan and Daniel Mason, or any one of them (with full power in each one of them to act alone), as my true and lawful agents and attorneys-in-fact, each with power of substitution and full power and authority to act for me in any and all capacities for the purpose of signing my name as an officer or director of The Wackenhut Corporation to, and filing with the Securities and Exchange Commission, the above defined Annual Report on Form 10-K, any amendment or amendments to it, and any exhibit or other documents related thereto or required in connection therewith, and I ratify and confirm all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue of this appointment and authorization. IN WITNESS WHEREOF, I have executed this instrument this 25th day of March, 1996. /s/ George R. Wackenhut Date: March 25, 1996 - ------------------------------ -------------- George R. Wackenhut - Director 2 EXHIBIT 24 POWER OF ATTORNEY In connection with the filing with the Securities and Exchange Commission by The Wackenhut Corporation, a Florida corporation (the "Corporation"), of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, under the Securities Exchange Act of 1934, I hereby appoint and constitute Robert C. Kneip, James P. Rowan and Daniel Mason, or any one of them (with full power in each one of them to act alone), as my true and lawful agents and attorneys-in-fact, each with power of substitution and full power and authority to act for me in any and all capacities for the purpose of signing my name as an officer or director of The Wackenhut Corporation to, and filing with the Securities and Exchange Commission, the above defined Annual Report on Form 10-K, any amendment or amendments to it, and any exhibit or other documents related thereto or required in connection therewith, and I ratify and confirm all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue of this appointment and authorization. IN WITNESS WHEREOF, I have executed this instrument this 28th day of March, 1996. /s/ Daniel E. Mason Date: March 28, 1996 - ------------------------------ -------------- Daniel E. Mason - Vice President and Chief Financial Officer, Domestic Operations 3 EXHIBIT 24 POWER OF ATTORNEY In connection with the filing with the Securities and Exchange Commission by The Wackenhut Corporation, a Florida corporation (the "Corporation"), of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, under the Securities Exchange Act of 1934, I hereby appoint and constitute Robert C. Kneip, James P. Rowan and Daniel Mason, or any one of them (with full power in each one of them to act alone), as my true and lawful agents and attorneys-in-fact, each with power of substitution and full power and authority to act for me in any and all capacities for the purpose of signing my name as an officer or director of The Wackenhut Corporation to, and filing with the Securities and Exchange Commission, the above defined Annual Report on Form 10-K, any amendment or amendments to it, and any exhibit or other documents related thereto or required in connection therewith, and I ratify and confirm all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue of this appointment and authorization. IN WITNESS WHEREOF, I have executed this instrument this 26th day of March, 1996. /s/ Juan D. Miyar Date: March 26, 1996 - ------------------------------ -------------- Juan D. Miyar - Vice President - Accounting and Corporate Contoller 4 EXHIBIT 24 POWER OF ATTORNEY In connection with the filing with the Securities and Exchange Commission by The Wackenhut Corporation, a Florida corporation (the "Corporation"), of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, under the Securities Exchange Act of 1934, I hereby appoint and constitute Robert C. Kneip, James P. Rowan and Daniel Mason, or any one of them (with full power in each one of them to act alone), as my true and lawful agents and attorneys-in-fact, each with power of substitution and full power and authority to act for me in any and all capacities for the purpose of signing my name as an officer or director of The Wackenhut Corporation to, and filing with the Securities and Exchange Commission, the above defined Annual Report on Form 10-K, any amendment or amendments to it, and any exhibit or other documents related thereto or required in connection therewith, and I ratify and confirm all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue of this appointment and authorization. IN WITNESS WHEREOF, I have executed this instrument this 25th day of March, 1996. /s/ Julius W. Becton, Jr. Date: March 25, 1996 - ------------------------------ -------------- Julius W. Becton, Jr. - Director 5 EXHIBIT 24 POWER OF ATTORNEY In connection with the filing with the Securities and Exchange Commission by The Wackenhut Corporation, a Florida corporation (the "Corporation"), of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, under the Securities Exchange Act of 1934, I hereby appoint and constitute Robert C. Kneip, James P. Rowan and Daniel Mason, or any one of them (with full power in each one of them to act alone), as my true and lawful agents and attorneys-in-fact, each with power of substitution and full power and authority to act for me in any and all capacities for the purpose of signing my name as an officer or director of The Wackenhut Corporation to, and filing with the Securities and Exchange Commission, the above defined Annual Report on Form 10-K, any amendment or amendments to it, and any exhibit or other documents related thereto or required in connection therewith, and I ratify and confirm all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue of this appointment and authorization. IN WITNESS WHEREOF, I have executed this instrument this 25th day of March, 1996. /s/ Paul X. Kelley Date: March 25, 1996 - ------------------------------ -------------- Paul X. Kelley - Director 6 EXHIBIT 24 POWER OF ATTORNEY In connection with the filing with the Securities and Exchange Commission by The Wackenhut Corporation, a Florida corporation (the "Corporation"), of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, under the Securities Exchange Act of 1934, I hereby appoint and constitute Robert C. Kneip, James P. Rowan and Daniel Mason, or any one of them (with full power in each one of them to act alone), as my true and lawful agents and attorneys-in-fact, each with power of substitution and full power and authority to act for me in any and all capacities for the purpose of signing my name as an officer or director of The Wackenhut Corporation to, and filing with the Securities and Exchange Commission, the above defined Annual Report on Form 10-K, any amendment or amendments to it, and any exhibit or other documents related thereto or required in connection therewith, and I ratify and confirm all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue of this appointment and authorization. IN WITNESS WHEREOF, I have executed this instrument this 25th day of March, 1996. /s/ Thomas P. Stafford Date: March 25, 1996 - ------------------------------ -------------- Thomas P. Stafford - Director 7 EXHIBIT 24 POWER OF ATTORNEY In connection with the filing with the Securities and Exchange Commission by The Wackenhut Corporation, a Florida corporation (the "Corporation"), of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, under the Securities Exchange Act of 1934, I hereby appoint and constitute Robert C. Kneip, James P. Rowan and Daniel Mason, or any one of them (with full power in each one of them to act alone), as my true and lawful agents and attorneys-in-fact, each with power of substitution and full power and authority to act for me in any and all capacities for the purpose of signing my name as an officer or director of The Wackenhut Corporation to, and filing with the Securities and Exchange Commission, the above defined Annual Report on Form 10-K, any amendment or amendments to it, and any exhibit or other documents related thereto or required in connection therewith, and I ratify and confirm all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue of this appointment and authorization. IN WITNESS WHEREOF, I have executed this instrument this 25th day of March, 1996. /s/ Richard R. Wackenhut Date: March 25, 1996 - ------------------------------ -------------- Richard R. Wackenhut - Director EX-27 18 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995. 1,000 12-MOS DEC-31-1995 JAN-02-1995 DEC-31-1995 20,185 5,774 77,121 1,268 6,798 122,162 29,132 9,851 197,927 72,524 5,376 0 0 1,213 61,691 197,927 0 796,732 0 780,958 0 863 3,356 13,733 4,742 0 0 0 0 7,260 0.60 0.00 MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT ARE CLASSIFIED AS NON-CURRENT ASSETS ON THE BALANCE SHEET. IN JANUARY 1995, THE CORPORATION ENTERED INTO A $40 MILLION, THREE YEAR ACCOUNTS RECEIVABLE SECURITIZATION FACILITY AGREEMENT TO SELL AN UNDIVIDED INTEREST IN A DEFINED POOL OF ELIGIBLE RECEIVABLES. IN DECEMBER 1995, THE ACCOUNTS RECEIVABLE SECURITIZATION FACILITY WAS INCREASED TO $50 MILLION. AT DEC. 31, 1995, $35 MILLION OF ACCOOUNTS RECEIVABLE HAD BEEN SOLD AND ARE INCLUDED AS A REDUCTION IN ACCOUNTS RECEIVABLE ON THIS SCHEDULE. INCLUDES $18,058 OF OTHER CURRENT ASSETS. INCLUDES $40,118 RESERVE FOR LOSSES OF CASUALTY REINSURANCE SUBSIDIARY, $8,978 MINORITY INTEREST AND $8,027 OTHER LIABILITIES. INCLUDES MINORITY INTEREST AND EQUITY INCOME OF FOREIGN AFFILIATES - NET OF INCOME TAXES OF $2,362 AND $(631) RESPECTIVELY.
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